Joint Product Costs

nguyp035's version from 2016-05-18 16:06

Section 1

Question Answer
In some industries, a number of end products are produced...from a single raw material input e.g. a chicken has by products which makes more than one product.
Two or more products produced from a common input is called...joint products..
the split of point is....the point in manufacturing process where each joint product can be recognized as a separate product
Joint costs are...common costs incurred to simultaneously produce a variety of end products
Joint costs are often...allocated to end products on the basis of the relative sales value of each product or on some other basis

Section 2

Question Answer
In terms of joint costs we may use it to decide to...sell or process a product further...
It is profitable to continue processing a joint product after split off so long as...the incremental revenue exceeds the incremental processing costs incurred after split off point
Question Answer
e.g. Cut logs >Lumber and sawdust (joint products)
Lumber can be sold as is ORprocessed into finished finished lumber
Sawdust can be sold as is ORprocessed into presto logs
Step 1 Identify the sales value at split off, sales after processing, allocated joint product cost, cost of further processing
Step 2 (Analysis of sell or process further)Find out the incremental revenue (if any) by (Sales value after process - sales value at split off)
Step 3 Incremental revenue - Cost of further processing = profit (loss) from further processsing
Step 4 If positive then process further - if negative sell as is.

Section 3