Joint & By-Product

• Under the joint production process, the joint products are the main or primary outputs. While the by-products and scrap are the incidental outputs.
• Split-off point is the point in the production process where the outputs are separately identified.
• Any costs incurred after split-off to process further the product to become saleable is known as further processing cost or separable costs.
• True or False.

  By-products are incidental and saleable products that have a sale value relatively higher than the joint products

  False
• Scrap - it is a residual material that has a minimal but distinct disposal value
• Hierarchy of Products in terms of value:

  1. Joint products
  2. By-products
  3. Scrap
• NRV = Product final sales value - FPC - Disposal costs
• Methods of Allocating Joint Costs to Joint Products

  1. Physical Measure Method
  2. Monetary Measure Method
  3. SV @ Split-off Point Method
  4. NRV Method (Approx. MV)
  5. Weighted Average Method
• Physical Measure Method - based on a common physical characteristics or # of units produced
• Monetary Measure Method - costs are allocated based on sales value of individual products. Shows the direct relationship existing between the sales price and cost of the product.
• Weighted average method = weight factors assigned x # of units produced
• Accounting for By-products

  1. By-products are recognized when realized (sold) - no joint cost to by-products as they are of minor importance

  • Net revenue is presented in IS as:

  1. Other sales revenue
  2. Ded to COGS of main product
  3. Other income
  4. Deduction to TMC
  5. By-products are recognized when produced - BP is considered part of the inventory

  • NRV Method
  • Reversal costs method