Joint Products & By Products Flashcards
(36 cards)
What are joint products
Joint products are two or more valuable outputs that:
- Are produced simultaneously from the same raw material
- Share a common production process up to a specific point
- Become separately identifiable at the split-off point
How do by-products emerge
By-products emerge incidentally from the production of the major products and have relatively minor sales value
What are examples of joint products
Examples of joint products are:
- Crude oil refined into petrol, kerosene, and diesel
- Milk processed into cream and skimmed milk
- Chickens separated into breasts, legs, and wings
What is the split-off point
The split-off point is when the individual products become identifiable and can be sold or further processed
What are joint costs
Joint costs are incurred before the split-off point
What costs does joint costs include
Joint costs include all expenses, such as:
- Raw materials
- Labour
- Overheads
What are joint costs like until split-off
Joint costs are common and indivisible until split-off
Can joint costs be traced to individual products
Joint costs cannot be traced to individual products
Why must joint costs be allocated
Joint costs must be allocated to assess inventory valuation, profitability, and performance
What is the intent of production of joint products
Joint products are the primary purpose of production
What is the intent of production for by-products
By-products are incidental/by chance
What is the market value of joint products
The market value of joint products is significant
What is the market value of by-products
The market value of by-products is relatively minor
What is the post-split treatment of joint products
Joint-products post-split treatment is to be allocated to joint costs
What is the post split treatment of by-products
Post split by-products are treated as a deduction from joint costs
What are the different joint cost allocation methods
The different joint cost allocation methods are:
- Physical measure method
- Sales value at split-off method
- Net realizable value (NRV) method
What is allocation based on with the physical measure method
Allocation is based on quantities
What does the physical measure method assume
The physical measure method assumes that all outputs contribute equally per unit
What are the pros of the physical measure method
Pros of the physical measure method are:
- Simple
- Objective
What are the cons of the physical measure method
Cons of the physical measure method are:
- Ignores market value differences
- May distort costs if one product is much more valuable
How does the sales value at split-off method allocate joint costs
Allocates joint costs in proportion to relative sales value of each product at split-off
What are the pros of the sales value at split-off method
Pros of the sales value at split-off methods are:
- Reflects economic benefit of each product
- Appropriate when all outputs are saleable at split-off
What are the cons of the sales value at split-off method
The cons of the sales value at split-off method are:
- Not useful if products require further processing before sale
- Requires reliable market price data
What is the Net Realizable Value (NRV) method based on
NRV is based on estimated final sales minus separable costs
