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How Can Diversity of Thought Lead to Good Ethical Decisions?
NFP A mails informational materials to the parents of all junior high school students explaining the prevalence and dangers of drug abuse. The materials encourage parents to counsel children about the dangers of drug abuse and inform them about how to detect it. The resulting product has total sales worth equivalent to USD 10,000, USD 15,000, and USD 12,000 for product-A, product-B, and product-C, respectively. The cost allocation based on the sales value can be carried out as follows.
Content: Joint Cost
Two or more products made from a single input are called joint products. The costs of the single input and related manufacturing process costs must be allocated to each of the joint products. The physical quantities method allocates joint costs based on a physical measure of output (e.g., pounds or yards of material).
Standard Costing and Variance Analysis
- It will have an impact on the valuation of inventory, profit forecasting and unreasonable costing and pricing of other products.
- That allocation can appear somewhat subjective and has come under increased scrutiny.
- If a company uses the kernels in two or more different processes – such as roasting and crushing – the costs become joint costs.
- They come into existence because their production cannot be avoided because of the nature of production process or the raw materials being used in the production process.
Joint costs are incurred at the outset, even if each product possesses some value when it emerges from the process. Joint/By-products result from the common manufacturing process, though the accounting treatment for joint and by-products is different. The difference between these products is not keen enough because it depends on the products’ economic value. In many industries, a common manufacturing process generates multiple products, such products derived by this process are called Joint products or By-products. A joint cost is an expenditure that benefits more than one product, and for which it is not possible to separate the contribution to each product.
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Cost accountants must allocate these joint costs to each joint product in a way that reflects the proportion of resources used in their production. On the other hand, by-product costing is used when a secondary product is produced due to the main production process. Both methods require careful attention to detail, as accurate cost allocation is essential for proper decision-making. When deciding on the most effective way to allocate costs, joint and by-product costing are two popular methods. Joint costing is used when two or more products are produced from a common process, and the costs must be divided between the products.
Average unit cost method
The main products are produced in larger quantities whereas by-products are produced in relatively small quantities. In summary, joint and by-product costing requires high accuracy and consistency to ensure that costs are allocated appropriately and that financial statements are reliable. https://accounting-services.net/ Once the costs have been allocated appropriately, the cost accountant can determine the profitability of each joint product and the by-product. This information can be used to decide which products to produce and sell and can also help identify opportunities to increase profitability.
By-products are products that are produced alongside the main product in the manufacturing process. Joint products and by-products have their own cost components, and cost accountants must accurately identify them to allocate costs appropriately. Joint product costing constitutes the cost that arises from the common processing or manufacturing of products produced from a common raw material. The situation is quite different for any costs incurred from the split-off point onward. Since these costs can be attributed to specific products, you should never set a product price to be at or below the total costs incurred after the split-off point.
We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own. At the split-point, we have option to sell both products or processes further for more revenue. Moreover, the variable cost is determined with the help of units sold, and the fixed cost is ascertained through the contribution margin ratio. For this reason, weight factors are often assigned to each unit based on unit size, manufacturing difficulty, manufacturing time, differences in the type of labor employed, the amount of material used, and so on.
A joint cost is incurred before the point at which separately identifiable products emerge from the same process. This method will use the sale value of each product as the basis for cost allocation. With this method, we will get the same contribution margin for all products.
The logic behind the idea is that the product good in quality should be apportioned more proportion of the joint cost. The sales value of product-A small business bookkeeping memphis was USD 20,000, product B 35,000, product 45,000. The cost accountant must determine the value of the by-product, in this case, the beef bones.
The allocation methodology should be rational, systematic, and applied consistently. Examples of allocation approaches include the physical-units, relative-direct-cost, and stand-alone joint-cost-allocation methods. All the facts in Example 1 remain the same; however, the audience was selected from a list composed of prior donors. In this case, the purpose and content criteria are met; however, the audience criterion is not met because the audience includes prior donors.
In dairy products, the skimming of raw milk yields skimmed milk, cream and butter. Also, in the case of processing coconut, we get coconut water, coconut cream, desiccated coconut and jute. Management may have decided, however, that it is more profitable to process certain products further before they are sold. Both products have to be processed after the split-off point with the cost of USD 5,000 for each product. The business purchases the water from a water purification company and uses it in the production of multiple beverages.
