Joint and By-Product Costing

Question 1

Describe the relative sales value allocation used in joint product costing.

Answer 1

Joint costs are allocated to products based on the relative sales values of the products either as split-off or after additional processing.

Question 2

Define “joint products”.

Answer 2

Products which are produced from the same set of raw materials and which are not separately identified until a split-off point; only products with significant sales value are treated as joint products: products with little or no sales value are treated as by-products or scrap.

Question 3

What is the accounting treatment of scrap and by-products in joint product costing?

Answer 3

Costs: Joint costs are not allocated to scrap or by-products; costs incurred to process scrap or by-products after split-off are offset against proceeds from the sale of the scrap or by-product.
Proceeds: Proceeds from sale of the scrap or by-product are used to reduce joint product overhead costs (unless they can be identified with a particular direct material, in which case they may be offset against that cost).

Question 4

Define “joint costs”.

Answer 4

Costs incurred prior to split-off that must be allocated to the joint products.

Question 5

Describe the relative physical volume allocation used in joint product costing.

Answer 5

Joint costs are allocated to products based on the quantity of products produced (units, gallons, feet, pounds, etc.).

Question 6

List the methods of accounting for by-product sales.

Answer 6

The sales value of the by-product may be recognized (e.g., used to reduce the cost of joint products) either:

1. When the by-product is produced or
2. When the by-product is sold