MS5

• Joint cost allocation is useful for product costing
• when allocating joint cost based on tons of output, all products will have the same joint cost pe ton
• while preparing a salad, you remove the core of a head of lettuce. This core is classified as scrap or waste
• In a lumber mill, 2'4 suds would e most likely be considered as a primary product
• L Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL).. A standard production run incurs joint costs of P300,000 and results in 60,000 units of MSB and 90.000 units of CBL. Each MSB sells for P2 per unit, and each CBL sells for P4 per unit. Assuming no further processing work is done after the split-off point, the amount of joint cost allocated to commercial building lumber (CBL) on a physical quantity allocation basis would be:

  180,000
• further processing cost, final selling price, and selling price at split-off are necessary information o decide whether to sell the joint product at split-off point or to process further
• Joint costs are incurred before the split-off point in a product process
• The primary distinction between by-product and scrap is the difference in sales value
• The split-off point is where the individual products are first identifiable in a joint process
• Joint cost are allocated to primary products only
• By-product and scrap are incidental to the joint process
• The expense incurred in waste disposal may exceed its production cost in some industries. However, many companies have learned either to minimize their production waste by changing their processing techniques or to reclassify waste as by-product or scrap by finding a use that generates some minimal amount of revenue
• The step method allows a partial recognition of the effects of interactions among support department in assigning costs. This method ranks the quantity of services provided by each support department to other support areas
• When a byproduct is treated as deduction in COGS, there is no need to to compute for the new cost per unit of the prouct
• Typically, as the number of product lines or service type increases, so does the need for additional indirectly related activities
• Service department cost are considered part of factory overhead cost
• When by-products are computed under production method byproduct is accounted for at the time the byproduct is produced
• Byproduct under sale method is accounted only when products are sold
• When byproduct is recognized at NRV, whenever byproduct is sold, we debit cash/ar and credit byproduct inventory
• step-down/sequential method allocates the cost of some service department but once a service department's cost have been allocated, no subsequent cost are allocated back to it
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  11. 30,000 increase


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• Byproduct are products produced simultaneously from a common manufacturing process with products of greater value and quantity
• Reciprocal/algebric method recognizes that service department often provide each other interdepartamental services, it is theoraticaly the most accurate method
• Cost to be incurred after split off point are not useful for adjusting inequities in the joint cost allocation procedure
• When the accounting treatment for byproduct is treated as an additional revenue, net income computed under the other method such as deduction to COGS is the same
• Unit cost in the joint process allocated using the sales value at split off is not the same
• When physical method is used, unit cost or main product is the same
• decisions made about further processing affect the values used to allocate joint cost in the approximated NRV method.If it is not economical to process one or more products beyond split-off , the base used for allocating joint cost will be a mixture of actual and approximated NRV's at split-off
• The net realizable value requires the sales value at split of point be decreased by any costs necessary to prepare and dispose of the product
• In a job order system, the value of byproduct/scrap is appropriately credited to either manufacturing overhead or the specific jobs in process. Overhead is credited if byproduct/scrap is typically created by most jobs undertaken
• For the purpose of allocating joint costs to joint product, the estimated net realizable value at split-off is equal to selling price at split off reduced by cost to complete after split-off
• one of the management's purpose for allocating joint cost of a processing center to the various products produced isto establish inventory values for unsold units
• If total anticipated revenue exceeds all anticipated costs, managers should compare the income from this use of company resources to that provided by the best alternative use. If the joint process income exceeds that of the best alternative, management would decide that this production process is the best capacity use and would begin production.
• Management must decide whether to sell (any, or all of) the joint output at split-off or to process it further. If joint products are salable at split-off, further processing should be undertaken only if the value added to the product, as reflected by the incremental revenue, exceeds the incremental cost.
• For purposes of allocating joint cost to joint products, the sales price at point of sale, reduced by cost to complete after split-off, assumed to be equal to the relative sales value at split off