Maliyet Muhasebesi Cost Allocation Joint Products and By-products 15 - 1 Cost Allocation: Joint Products and By-products Chapter 0815 - 2 Introduction This chapter considers when companies * produce two or more products simultaneously out of the same process(es). It examines methods for allocating costs to * jointly-produced products. This chapter also provides another illustration * of the different costs for different purposes theme that underlies cost accounting.15 - 3 Learning Objective 1 Identify the splitoff point(s) in a joint-cost situation15 - 4 Joint-Cost Basics Joint costs are the costs of a single production * process that yields multiple products simultaneously. Industries abound in which a single production * process simultaneously yields two or more products.15 - 5 Joint-Cost Basics Tomatoes Tomato juice Tomato sauce Tomato paste15 - 6 Joint-Cost Basics The outputs of a joint production process can * be classified into two general categories: Joint product 1 By-product 215 - 7 Splitoff Point The splitoff point is the juncture in the * production process where one or more products in a joint-cost setting become separately identifiable. Separable costs are all costs (manufacturing, * marketing, distribution, etc.) incurred beyond the splitoff point that are assignable to one or more individual products.15 - 8 Tomatoes Processing $400,000 Joint Costs Tomato Sauce Tomato Juice Splitoff Point Overview of Joint Costs15 - 9 Learning Objective 2 Distinguish between joint products and by-products15 - 10 Joint Products and By-products Joint products have relatively high sales value * at the splitoff point. Main product is the result of a joint production * process that yields only one product with a relatively high sales value. By-products are incidental products resulting * from the processing of another product.15 - 11 Joint Products and By-products A by-product has a relatively low sales value * compared with the sales value of a joint or main product. Some outputs of the joint production process * have zero sales value. No journal entries are made in the accounting * system to record the processing of such outputs with zero sales value.15 - 12 Joint Products and By-products Sales Value High Low Main Products Joint Products By-products15 - 13 Joint Products and By-products The classification of products as main, joint, * or by-product depends on its sales value. Products can change from by-products to joint * products when their relative sales values increases and changes from joint products to by-products when their relative sales value decreases.15 - 14 Learning Objective 3 Explain why joint costs should be allocated to individual products15 - 15 Why Allocate Joint Products? The purposes for allocating joint costs to * products include: Inventory costing Inventory costing and cost-of-goods-sold * computations are important for financial accounting purposes, reports to income tax authorities, and internal reporting purposes.15 - 16 Learning Objective 4 Allocate joint costs using several different methods15 - 17 Approaches to Allocating Joint Costs The two basic approaches to allocating joint * costs are: Approach 1: Allocate costs using market- * based data such as revenues. Approach 2: Allocate costs in some physical * measure-based data such as weight or volume.15 - 18 Allocating Joint Costs Approach 1: * The sales value at splitoff method * The estimated net realizable value (NRV) * method The constant gross-margin percentage NRV * method15 - 19 Allocating Joint Costs Lubbock Company incurred $200,000 of * joint costs to produce the following: Product A: 10,000 units, 20,000 pounds * Product B: 10,500 units, 48,000 pounds * Product C: 11,500 units, 12,000 pounds *15 - 20 Sales Value at Splitoff Method The sales value at splitoff method allocates * joint costs to joint products on the basis of the relative sales value at the splitoff point of the total production of these products during the accounting period.15 - 21 Sales Value at Splitoff Method Assume the following sales values per unit: * A: $10.00, B: $30.00, and C: $20.00 What is the sales value at splitoff point? * Product A: 10,000 × $10.00 = $100,000 * Product B: 10,500 × $30.00 = 315,000 * Product C: 11,500 × $20.00 = 230,000 * Total $645,000 *15 - 22 Sales Value at Splitoff Method How much of the joint costs are allocated * to each product? Product A: * $100,000/$645,000 × $200,000 = $ 31,008 Product B: $315,000/$645,000 × $200,000 = 97,674 Product C: $230,000/$645,000 × $200,000 = 71,318 Total $200,00015 - 23 Sales Value at Splitoff Method What are the joint production costs per unit? * Product A: $31,008 ÷ 10,000 = $3.10 * Product B: $97,674 ÷ 10,500 = $9.30 * Product C: $71,318 ÷ 11,500 = $6.20 *15 - 24 Sales Value at Splitoff Method Assume all of the units produced of B and C * were sold. 2,500 units of A (25%) remain in inventory. * What is the gross margin percentage of each * product?15 - 25 Sales Value at Splitoff Method Product A * Revenues: 7,500 units × $10.00 $75,000 Cost of goods sold: * Joint product costs $31,008 Less ending inventory $31,008 × 25% 7,752 23,256 Gross margin $51,744 *15 - 26 Sales Value at Splitoff Method Product A: * $75,000 – $ 23,256 = $51,744 $51,744 ÷ $75,000 = 69% Product B: * ($315,000 – $97,674) ÷ $315,000 = 69% Product C: * ($230,000 – $71,318) ÷ $230,000 = 69%15 - 27 Sales Value at Splitoff Method Note that this method uses the sales value of * the entire production of the accounting period. Joint costs were incurred on all units * produced, not just those sold. The sales value at splitoff method produces an * identical gross margin percentage for each product.15 - 28 Estimated Net Realizable Value (NRV) Method In many cases, products are processed further * beyond the splitoff point in order to bring them to a marketable form or to increase their value above their selling price at the splitoff point.15 - 29 Estimated Net Realizable Value (NRV) Method The estimated NRV method allocates joint * costs to joint products on the basis of the relative estimated NRV. The estimated NRV is the expected final * sales value in the ordinary course of business minus the expected separable costs of the total production of these products during the accounting period.15 - 30 Estimated Net Realizable Value (NRV) Method Assume that Lubbock Company can process * products A, B, and C further into A1, B1, and C1. Assume that selling prices of A1, B1 and C1 are $12, $33 and $21 respectively. The new sales value after further processing are: * A1: 10,000 × $12.00 = $120,000 * B1: 10,500 × $33.00 = $346,500 C1: 11,500 × $21.00 = $241,50015 - 31 Estimated Net Realizable Value (NRV) Method Additional processing (separable) costs * are as follows: A1: $35,000; B1: $46,500; and C1: $51,500 * What is the estimated net realizable value * of each product at the splitoff point?15 - 32 Estimated Net Realizable Value (NRV) Method Product A1: $120,000 – $35,000 = $85,000 * estimated net realizable value Product B1: $346,500 – $46,500 = $300,000 * estimated net realizable value Product C1: $241,500 – $51,500 = $190,000 * estimated net realizable value How much of the joint cost is allocated to each * product?15 - 33 Estimated Net Realizable Value (NRV) Method Estimated Net Realizable Value Weight Product A1 $ 85,000 85/575 Product B1 300,000 300/575 Product C1 190,000 190/575 Total $575,00015 - 34 Estimated Net Realizable Value (NRV) Method Product A1: 85/575 × $200,000 = $ 29,565 * Product B1: 300/575 × $200,000 = 104,348 * Product C1: 190/575 × $200,000 = 66,087 * Total $200,000 *15 - 35 Estimated Net Realizable Value (NRV) Method Allocated Separable Inventory joint costs costs costs A1 $ 29,565 $ 35,000 $ 64,565 B1 104,348 46,500 150,848 C1 66,087 51,500 117,587 Total $200,000 $133,000 $333,00015 - 36 Estimated Net Realizable Value (NRV) Method What is the production cost per unit? * Product A1: $64,565 ÷ 10,000 = $6.46 * Product B1: $150,848 ÷ 10,500 = $14.37 * Product C1: $117,587 ÷ 11,500 = $10.22 *15 - 37 Constant Gross-Margin Percentage NRV Method The constant gross-margin percentage NRV * method allocates joint costs to joint products in such a way that the overall gross-margin percentage is identical for each of the individual products.15 - 38 Constant Gross-Margin Percentage NRV Method This method entails three steps: * Step 1: Compute the overall gross-margin * percentage. Step 2: Use the overall gross-margin * percentage and deduct the gross margin from the final sales values to obtain the total costs that each product should bear.15 - 39 Constant Gross-Margin Percentage NRV Method Step 3: Deduct the expected separable costs * from the total costs to obtain the joint- cost allocation.15 - 40 Constant Gross-Margin Percentage NRV Method What is the expected final sales value of total * production during the accounting period? Product A1: $120,000 * Product B1: 346,500 Product C1: 241,500 Total $708,00015 - 41 Constant Gross-Margin Percentage NRV Method Step 1: Compute the overall gross-margin * percentage. Expected final sales value $708,000 * Deduct joint and separable costs 333,000 Gross margin $375,000 Gross margin percentage: $375,000 * ÷ $708,000 = 52.966%15 - 42 Constant Gross-Margin Percentage NRV Method Step 2: Deduct the gross margin. * Sales Gross Cost of * Value Margin Goods sold Product A1: $120,000 $ 63,559 $ 56,441 Product B1: 346,500 183,527 162,973 Product C1: 241,500 127,913 113,587 Total $708,000 $375,000 $333,000 ($1 rounding)15 - 43 Constant Gross-Margin Percentage NRV Method Step 3: Deduct separable costs. * Cost of Separable Joint costs * goods sold costs allocated Product A1: $ 56,441 $ 35,000 $ 21,441 Product B1: 162,973 46,500 116,473 Product C1: 113,587 51,500 62,087 Total $333,000 $133,000 $200,00015 - 44 Physical Measure Method The physical measure method allocates joint * costs to joint products on the basis of the relative weight, volume, or other physical measure at the splitoff point of the total production of these products during the accounting period.15 - 45 Physical Measure Method Recall that Lubbock Company incurred * $200,00 of joint costs to produce A, B, and C products. Product A: 10,000 units, 20,000 pounds * Product B: 10,500 units, 48,000 pounds * Product C: 11,500 units, 12,000 pounds *15 - 46 Physical Measure Method What are the joint costs allocated to each * product using the number of pounds produced as the physical measure? Product A: 20,000/80,000 × $200,000 = $50,000 * Product B: 48,000/80,000 × $200,000 = $120,000 * Product C: 12,000/80,000 × $200,000 = $30,000 *15 - 47 Physical Measure Method What is the cost per pound for each product? * Product A: $50,000 ÷ 20,000 = $2.50 * Product B: $120,000 ÷ 48,000 = $2.50 Product C: $30,000 ÷ 12,000 = $2.50 It is possible to obtain the cost per pound * ($200,000 ÷ 80,000 = $2.50) and use this amount to distribute the joint costs.15 - 48 Physical Measure Method Under the benefits-received criterion, the * physical measure method is less preferred than the sales value at splitoff method. Why? * Because it has no relationship to the revenue- * producing power of the individual products.15 - 49 Comparison of Methods Which method of allocating joint costs should be * chosen? The sales value at splitoff method is widely used * where market prices exist at splitoff. It is objective. – It does not anticipate subsequent management – decisions on further processing. It uses a meaningful common denominator. – It is simple. –15 - 50 Learning Objective 5 Explain why joint costs are irrelevant in a sell-or-process further decision15 - 51 Irrelevance of Joint Costs for Decision Making Joint costs incurred up to the splitoff point * are past (sunk) costs irrelevant to the decision to sell a joint (or main) product at the splitoff point or to process it further.15 - 52 Irrelevance of Joint Costs for Decision Making Assume that products A, B, and C can be sold * at the splitoff point or processed further into A1, B1, and C1. Units Selling Selling Additional * price price costs 10,000 A: $10 A1: $12 $35,000 10,500 B: $30 B1: $33 $46,500 11,500 C: $20 C1: $21 $51,50015 - 53 Irrelevance of Joint Costs for Decision Making Should A, B, or C be sold at the splitoff * point or processed further? Product A: Incremental revenue $20,000 – * Incremental cost $35,000 = ($15,000) Product B: Incremental revenue $31,500 * – Incremental cost $46,500 = ($15,000) Product C: Incremental revenue $11,500 * – Incremental cost $51,500 = ($40,000)15 - 54 Irrelevance of Joint Costs for Decision Making Products A, B, and C should be sold at the * splitoff point. No techniques for allocating joint-product * costs should guide decisions about whether a product should be sold at the splitoff point or processed beyond splitoff.15 - 55 Learning Objective 6 Account for by-products using two different methods15 - 56 Accounting for By-products Although by-products have much lower * sales value than do joint or main products, the presence of by-products can affect the allocation of joint costs. By-product accounting methods differ on * whether by-products are recognized in the financial statements at the time of production or the time of sale.15 - 57 Accounting for By-products Method A, the production by-product method, 1 recognizes by-products in the financial statements at the time their production is completed. Method B , the sale by-products method, 2 delays recognition of by-products until the time of their sale .15 - 58 Accounting for By-products The following data relates to Los Alamos, * Inc., a manufacturer of special clothes used by joggers.15 - 59 Accounting for By-products Main Products By-Products (Yards) (Yards) Production 1,000 400 Sales 800 300 Ending inventory 200 100 Sales price $13/yard $1.00/yard No beginning finished goods inventory15 - 60 Accounting for By-products Joint production costs for joint (main) products and by-products: Material $2,000 Manufacturing labor 3,000 Manufacturing overhead 4,000 Total production cost $9,00015 - 61 Accounting for By-products Method A Method A: Net realizable value assigned * to by-products inventory What is the value of ending inventory of joint * (main) products? $9,000 total production cost – $400 net * realizable value of the by-product = $8,600 net production cost for the joint products. 200 ÷ 1,000 × $8,600 = $1,720 is the value * assigned to the 200 yards in ending inventory.15 - 62 Accounting for By-products Method A What is the cost of goods sold? * Joint production costs $9,000 * Less by-product revenue 400 * Less main product inventory 1,720 * Cost of goods sold $6,880 *15 - 63 Accounting for By-products Method A Income Statement (Method A) * Revenues (800 yards × $13) $10,400 Cost of goods sold 6,880 * Gross margin $ 3,520 * What is the gross margin percentage? * $3,520 ÷ $10,400 = 33.85% *15 - 64 Accounting for By-products Method A What are the inventoriable costs? * Main product: 200 ÷ 1,000 × $8,600 = $1,720 * By-product: 100 × $1.00 = $10015 - 65 Journal Entries Method A Work-in-Process 2,000 * Accounts Payable 2,000 To record direct materials purchased and used in production Work-in-Process 7,000 * Various accounts 7,000 To record conversion costs in the joint process15 - 66 Journal Entries Method A By-product Inventory 400 * Finished Goods 8,600 Work-in-Process 9,000 To record cost of goods completed Cost of Goods Sold 6,880 * Finished Goods 6,880 To record the cost of the main product sold15 - 67 Journal Entries Method A Cash or Accounts Receivable 10,400 Revenues 10,400 To record the sale of the main product15 - 68 Accounting for By-products Method B Method B: The sale by-products method. * What is the value of ending inventory of joint * (main) products? 200 ÷ 1,000 × $9,000 = $1,800 * This method assigns no value to the 400 * yards of by-products at the time of production. The $300 resulting from the sale of by- * products is reported as revenues.15 - 69 Accounting for By-products Method B Income Statement (Method B) Revenues: Main product (800 × $13) $10,400 By- products sold 300 Total revenues $10,70015 - 70 Accounting for By-products Method B Income Statement (Method B) * Total revenues $10,700 Cost of goods sold: * Joint production costs 9,000 Less main product inventory 1,800 $ 7,200 Gross margin $ 3,500 *15 - 71 Accounting for By-products Method B What is the gross margin percentage? * $3,500 ÷ $10,700 = 32.71% * What are the inventoriable costs? * Main product: 200 ÷ 1,000 × $9,000 = $1,800 * By-product: -0-15 - 72 Journal Entries Method B Work-in-Process 2,000 * Accounts Payable 2,000 To record direct materials purchased and used in production Work-in-Process 7,000 * Various accounts 7,000 To record conversion costs in the joint process15 - 73 Journal Entries Method B Finished Goods 9,000 * Work-in-Process 9,000 To record cost of goods completed Cost of Goods Sold 7,200 * Finished Goods 7,200 To record the cost of the main product sold15 - 74 Journal Entries Method B Cash or Accounts Receivable 10,400 * Revenues 10,400 To record the sale of the main product Cash or Accounts Receivable 300 * Revenues 300 To record the sale of the by-product15 - 75 End of Chapter 08