Ch 9 Summary.docx

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Accounting & Financial Management
AFM 481
Grant Russell

Chapter 9 Joint Product and By-Product Costing Joint Products & Costs - Joint products: one or more products/services are created when processing one product - Main product: the product with the higher sales value - By-products have lower sales value - Joint costs: costs that incurred to jointly produce the group of goods - Joint costs are common to all joint products – incurred before the split-off point (where indiv. products are identified) - Separable costs are incurred after the split-off point Allocating Joint Costs - Joint costs must be allocated to each product for reporting inventory & COGS (f/s), income tax return and other reports - Also must be allocated for gov’t regulatory reports Physical Output Method - Allocate joint costs sing the relative portion of physical output for each main product - Use only when output for all main products can be expressed using the same physical measure (meters, km, L) - Identify an appropriate allocation base (lbs), calculate relative weight of by-product and multiply by joint costs to get cost to allocate Sales Value at Split-off Point Method - Allocate joint costs based on the relative sales value of main products - Allocation rate = sales value of product / sales value of all products Net Realizable Value (NRV) Method - Allocate joint costs using the relative value of main products – after considering the additional sales value created and costs incurred - Same calculation as sales value but use NRV instead of sales value Constant Gross Margin NRV Method - Allocate joint costs so that the gross margin % for the main products are identical - First calculate the combined gross margin % - total gross margin / total sales - Less gross margin % × sales $ = product costs - Less separable costs = allocated joint costs Choosing an Appropriate Joint Cost Allocation Method - Product gross margin will vary depending on which method is used because the costs are assigned at different proportions under each method - However, the total gross margin is the same for all methods Pros and Cons of Alternative Allocation Methods - Choose allocation method to avoid giving the impression that one or more products are sold at a loss - Physical volume commonly used when all uni
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