Joint Product & By-product
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Example no1.: 1 Joint Production Cost 2 Quantities produced: A B C D 3 Sale price at Split off point: A B C D
120,000 20,000 15,000 10,000 15,000
60,000
0.25 3.00 3.50 5.00
Solution: MARKET OR SALE VALUE METHOD (AT SPLIT OFF POINT) Product
Qty
A B C D
Sale Price 20,000 15,000 10,000 15,000
Market Value 0.25 3.00 3.50 5.00
Particulars
Ratio
5,000 45,000 35,000 75,000 160,000
A
Total units produced Sold units Ending units
0.03125 0.28125 0.21875 0.46875 1.00
B
20,000 18,000 2,000
15,000 12,000 3,000
Sale Price per unit
0.25
3.00
Cost price per unit
0.1875
2.2500
Gross profit per unit
0.0625
0.7500
1,125
9,000
25
25
Amount of gross profit Gross profit percentage
ALLOCATION OF JPC BY MARKET VALUE METHOD (AFTER SPLIT OFF POINT) Product A B C
Further Cost
Ultimate M.V 2,000 10,000 10,000
0.50 5.00 4.50
D
28,000
Product
Qty
A B C D
20,000 15,000 10,000 15,000
Particulars Total units produced Sold units Ending units
8.00
Ultimate Ultimate Further M.V per unit M.V Cost 0.50 10,000 2,000 5.00 75,000 10,000 4.50 45,000 10,000 8.00 120,000 28,000
A
B
20,000 18,000 2,000
15,000 12,000 3,000
0.50
5.00
4,800 2,000 6,800
39,000 10,000 49,000
Cost price per unit
0.3400
3.2667
Gross profit per unit
0.1600
1.7333
Amount of gross profit
2,880
20,800
Gross profit percentage
32.00
35
Sale Price per unit Joint production Cost Further cost Total Cost
QUANTITATIVE UNIT METHOD: Product
QTY
Coke Coal Tar Benzol Sulfate Gas Waste / Water
1,320.00 120.00 21.90 26.00 412.10 100.00 2,000.00 lbs
Distribution of Revised Qty Ratio Allocation Waste to Good of JPC output 69.4737 1,389.4737 0.6947 13.895 6.3158 126.3158 0.0632 1.263 1.1526 23.0526 0.0115 0.231 1.3684 27.3684 0.0137 0.274 21.6895 433.7895 0.2169 4.338 100.00 2,000.00 1.00 20.00
Note:
100 / 1900 = 0.05263 divided by 1900 instead of 2000 because on distribuiton of 100 on 1900 good output
AVERAGE OF UNIT COST METHOD: Consider Example 1: Calculate average rate: Average rate = Joint Production cost / Total nos. of unit produced Average rate = $ 120,000 / 60,000 units Average rate = $ 2 per unit
Product
Qty
A B C D
Average cost rate 20,000 15,000 10,000 15,000 60,000
Allocation of JPC 2 2 2 2
40,000 30,000 20,000 30,000 120,000
Weighted Average Method: Product A B C D
Qty
Point/ Weight 20,000 15,000 10,000 15,000
3 12 13.50 15
Total Rate Weight / Point 60,000 180,000 135,000 225,000 600,000
Weighted Average Rate = Amount of Joint Production cost / Total Weight Weighted Average rate = $ 120,000 / 600,000 unit weight Weighted Average rate = $0.20 per unit
0.20 0.20 0.20 0.20
Allocation of JPC 12,000 36,000 27,000 45,000 120,000
Allocation of JPC 3,750 33,750 26,250 56,250 120,000
C
D
10,000 8,000 2,000
15,000 14,000 1,000
3.50
5.00
2.6250
3.7500
0.8750
1.2500
7,000
17,500
25
25
Hypothytical Ratio Allocation Market Value of JPC 8,000 0.0400 4,800 65,000 0.3250 39,000 35,000 0.1750 21,000 92,000 0.4600 55,200 200,000 1 120,000 C
D
10,000 8,000 2,000
15,000 14,000 1,000
4.50
8.00
21,000 10,000 31,000
55,200 28,000 83,200
3.1000
5.5467
1.4000
2.4533
11,200
34,347
31
31
Allocation of Cost to by-Product Z by Reversal Cost Method
Operating Profit per unit Add: Operating Expenses: Marketing and Administrative expenses per unit
1 1
GROSS PROFIT per unit
2
Sales price per unit Less: Gross profit per unit
5 (2)
COST OF GOODS SOLD per unit
3
Less: Further processing cost per unit
(1)
COST OF GOODS SOLD per unit (at split off point)
2
Cost of Z Product = 2,000 units x Rs. 2 = Rs 4,000
ALLOCATION OF JOINT PRODUCT COST TO X and Y (by Market value method. Product
Ultimate MV / unit
Nos. of units produced
Ultimate Market Price
Processing cost
Hypothetical Market value
Allocation %
X
20
8,000
160,000
40,000
120,000
40
Y
25
10,000
250,000
70,000
180,000 300,000
60
Allocation of Joint Production Cost to X and Y is now Rs. 200,000 because Rs. 4,000 charged to Product Z which deduct from total cost of Rs. 204,000
Allocation of Joint cost
80,000 120,000 200,000
Required no. 1: Market Value method Product
Units
Sales price per unit
Total Market Value
Allocation %
Buildon
6,000
2.20
13,200
36.67
Buildeze
8,000
1.25
10,000
27.78
Buildrite
10,000
1.28
12,800 36,000
35.56 100
Required no. 2: Weighted Average method Product
Units
Weight per unit
Weighted Units
Allocation %
Buildon
6,000
6
36,000
33.33
Buildeze
8,000
4
32,000
29.63
Buildrite
10,000
4
40,000 108,000
37.04 100
21,600 108,000
0.20
Appropriation of Joint Production cost 7,920 6,000 7,680 21,600
Appropriation of Joint Production cost 7,200
7,200
6,400
6,400
8,000 21,600
8,000
Required no. 1: Average unit cost method
Product Unit Produced
Allocation %
Allocation of Joint production cost
Additional Cost
Total Cost
X
6,000
50.00
30,000
9,000
39,000
Y
4,000
33.33
20,000
7,000
27,000
Z
2,000 12,000
16.67 100
10,000 60,000
5,000 21,000
15,000 81,000
Required no: 2: Market Value method
Dept no.1:
Dept no.2
Input
110,000
Receiving from dept 1
Cost
120,000
Additional cost
66,000 38,000
19,800 BETA (30% of 66,000 units)
No additional cost & Joint produ Market expenses Sales value 1.20 per unit
46,200 APLHA Transfer to Dept 4 (70% of 66,000 units) Additional cost Sale value
23,660 Rs. 5 / unit
Dept No. 3 Receiving from dept 1
44,000 (40 % of input in dept 1) (4,000) (10% of good output) 40,000 Good output
Additional cost
165,000 Sales value 12 per unit
Let good output is X Input - Loss - WIP (at end) = Good output 44000 - 0.1 of x = x 44000 = x + 0.1 x 44000 = 1.1 x x = 44000 / 1.1 X = good out put = 40,000 units Req no: 1 Allocation of Joint Production Cost
Product
Aplha
Gamma
M.V. per unit
Nos. of units produced
Market Value
Processing Cost
Hypothetical M.V
Allocation %
5
46,200
231,000 15,660 246,660
38,000 23,660 61,660
185,000
37
12
40,000
480,000
165,000
315,000 500,000
63 100
W-1: Calculation of net realizable value method Sales revenue of Beta (19,800 units x 1.20) Less: Marketing expenses Net Realizable Value of beta
23,760 (8,100) 15,660
Required no: 2: Gross profit of Alpha Sales (48,000 x 80% = 38,400 units x Rs. 5)
W-1
W-2
Less: Production Cost Joint cost allocation to Alpha 102,000 Additional cost: Department no. 2 38,000 Department no. 4 23,660 61,660 Total Production Cost 163,660 Less: Net Realizable value of beta (15,900) Net Production Cost (48,000 lbs) 147,760 Less: Ending inventory (29,552) COST OF GOODS SOLD Gross Profit Net realizable value of beta Sales value of Beta (20,000 x 1.2) 24,000 Less: Marketable value (8,100) NRV 15,900 Cost of ending inventory Cost of ending inventory = Net production cost x % of ending inventory =147,760 x 20% 29,552
(60 % of input in dept 1)
o additional cost & Joint production cost arket expenses 8,100 ales value 1.20 per unit
GAMMA Loss
APLHA BETA
Allocation of Joint Production cost 44,400
75,600 120,000
192,000
(118,208) 73,792
120,000 20,000 15,000 10,000 15,000
60,000
0.25 3.00 3.50 5.00
Solution: MARKET OR SALE VALUE METHOD (AT SPLIT OFF POINT) Product
Qty
A B C D
Sale Price 20,000 15,000 10,000 15,000
Market Value 0.25 3.00 3.50 5.00
Particulars
Ratio
5,000 45,000 35,000 75,000 160,000
A
Total units produced Sold units Ending units
0.03125 0.28125 0.21875 0.46875 1.00
B
20,000 18,000 2,000
15,000 12,000 3,000
Sale Price per unit
0.25
3.00
Cost price per unit
0.1875
2.2500
Gross profit per unit
0.0625
0.7500
1,125
9,000
25
25
Amount of gross profit Gross profit percentage
ALLOCATION OF JPC BY MARKET VALUE METHOD (AFTER SPLIT OFF POINT) Product A B C
Further Cost
Ultimate M.V 2,000 10,000 10,000
0.50 5.00 4.50
D
28,000
Product
Qty
A B C D
20,000 15,000 10,000 15,000
Particulars Total units produced Sold units Ending units
8.00
Ultimate Ultimate Further M.V per unit M.V Cost 0.50 10,000 2,000 5.00 75,000 10,000 4.50 45,000 10,000 8.00 120,000 28,000
A
B
20,000 18,000 2,000
15,000 12,000 3,000
0.50
5.00
4,800 2,000 6,800
39,000 10,000 49,000
Cost price per unit
0.3400
3.2667
Gross profit per unit
0.1600
1.7333
Amount of gross profit
2,880
20,800
Gross profit percentage
32.00
35
Sale Price per unit Joint production Cost Further cost Total Cost
QUANTITATIVE UNIT METHOD: Product
QTY
Coke Coal Tar Benzol Sulfate Gas Waste / Water
1,320.00 120.00 21.90 26.00 412.10 100.00 2,000.00 lbs
Distribution of Revised Qty Ratio Allocation Waste to Good of JPC output 69.4737 1,389.4737 0.6947 13.895 6.3158 126.3158 0.0632 1.263 1.1526 23.0526 0.0115 0.231 1.3684 27.3684 0.0137 0.274 21.6895 433.7895 0.2169 4.338 100.00 2,000.00 1.00 20.00
Note:
100 / 1900 = 0.05263 divided by 1900 instead of 2000 because on distribuiton of 100 on 1900 good output
AVERAGE OF UNIT COST METHOD: Consider Example 1: Calculate average rate: Average rate = Joint Production cost / Total nos. of unit produced Average rate = $ 120,000 / 60,000 units Average rate = $ 2 per unit
Product
Qty
A B C D
Average cost rate 20,000 15,000 10,000 15,000 60,000
Allocation of JPC 2 2 2 2
40,000 30,000 20,000 30,000 120,000
Weighted Average Method: Product A B C D
Qty
Point/ Weight 20,000 15,000 10,000 15,000
3 12 13.50 15
Total Rate Weight / Point 60,000 180,000 135,000 225,000 600,000
Weighted Average Rate = Amount of Joint Production cost / Total Weight Weighted Average rate = $ 120,000 / 600,000 unit weight Weighted Average rate = $0.20 per unit
0.20 0.20 0.20 0.20
Allocation of JPC 12,000 36,000 27,000 45,000 120,000
Allocation of JPC 3,750 33,750 26,250 56,250 120,000
C
D
10,000 8,000 2,000
15,000 14,000 1,000
3.50
5.00
2.6250
3.7500
0.8750
1.2500
7,000
17,500
25
25
Hypothytical Ratio Allocation Market Value of JPC 8,000 0.0400 4,800 65,000 0.3250 39,000 35,000 0.1750 21,000 92,000 0.4600 55,200 200,000 1 120,000 C
D
10,000 8,000 2,000
15,000 14,000 1,000
4.50
8.00
21,000 10,000 31,000
55,200 28,000 83,200
3.1000
5.5467
1.4000
2.4533
11,200
34,347
31
31
Allocation of Cost to by-Product Z by Reversal Cost Method
Operating Profit per unit Add: Operating Expenses: Marketing and Administrative expenses per unit
1 1
GROSS PROFIT per unit
2
Sales price per unit Less: Gross profit per unit
5 (2)
COST OF GOODS SOLD per unit
3
Less: Further processing cost per unit
(1)
COST OF GOODS SOLD per unit (at split off point)
2
Cost of Z Product = 2,000 units x Rs. 2 = Rs 4,000
ALLOCATION OF JOINT PRODUCT COST TO X and Y (by Market value method. Product
Ultimate MV / unit
Nos. of units produced
Ultimate Market Price
Processing cost
Hypothetical Market value
Allocation %
X
20
8,000
160,000
40,000
120,000
40
Y
25
10,000
250,000
70,000
180,000 300,000
60
Allocation of Joint Production Cost to X and Y is now Rs. 200,000 because Rs. 4,000 charged to Product Z which deduct from total cost of Rs. 204,000
Allocation of Joint cost
80,000 120,000 200,000
Required no. 1: Market Value method Product
Units
Sales price per unit
Total Market Value
Allocation %
Buildon
6,000
2.20
13,200
36.67
Buildeze
8,000
1.25
10,000
27.78
Buildrite
10,000
1.28
12,800 36,000
35.56 100
Required no. 2: Weighted Average method Product
Units
Weight per unit
Weighted Units
Allocation %
Buildon
6,000
6
36,000
33.33
Buildeze
8,000
4
32,000
29.63
Buildrite
10,000
4
40,000 108,000
37.04 100
21,600 108,000
0.20
Appropriation of Joint Production cost 7,920 6,000 7,680 21,600
Appropriation of Joint Production cost 7,200
7,200
6,400
6,400
8,000 21,600
8,000
Required no. 1: Average unit cost method
Product Unit Produced
Allocation %
Allocation of Joint production cost
Additional Cost
Total Cost
X
6,000
50.00
30,000
9,000
39,000
Y
4,000
33.33
20,000
7,000
27,000
Z
2,000 12,000
16.67 100
10,000 60,000
5,000 21,000
15,000 81,000
Required no: 2: Market Value method
Dept no.1:
Dept no.2
Input
110,000
Receiving from dept 1
Cost
120,000
Additional cost
66,000 38,000
19,800 BETA (30% of 66,000 units)
No additional cost & Joint produ Market expenses Sales value 1.20 per unit
46,200 APLHA Transfer to Dept 4 (70% of 66,000 units) Additional cost Sale value
23,660 Rs. 5 / unit
Dept No. 3 Receiving from dept 1
44,000 (40 % of input in dept 1) (4,000) (10% of good output) 40,000 Good output
Additional cost
165,000 Sales value 12 per unit
Let good output is X Input - Loss - WIP (at end) = Good output 44000 - 0.1 of x = x 44000 = x + 0.1 x 44000 = 1.1 x x = 44000 / 1.1 X = good out put = 40,000 units Req no: 1 Allocation of Joint Production Cost
Product
Aplha
Gamma
M.V. per unit
Nos. of units produced
Market Value
Processing Cost
Hypothetical M.V
Allocation %
5
46,200
231,000 15,660 246,660
38,000 23,660 61,660
185,000
37
12
40,000
480,000
165,000
315,000 500,000
63 100
W-1: Calculation of net realizable value method Sales revenue of Beta (19,800 units x 1.20) Less: Marketing expenses Net Realizable Value of beta
23,760 (8,100) 15,660
Required no: 2: Gross profit of Alpha Sales (48,000 x 80% = 38,400 units x Rs. 5)
W-1
W-2
Less: Production Cost Joint cost allocation to Alpha 102,000 Additional cost: Department no. 2 38,000 Department no. 4 23,660 61,660 Total Production Cost 163,660 Less: Net Realizable value of beta (15,900) Net Production Cost (48,000 lbs) 147,760 Less: Ending inventory (29,552) COST OF GOODS SOLD Gross Profit Net realizable value of beta Sales value of Beta (20,000 x 1.2) 24,000 Less: Marketable value (8,100) NRV 15,900 Cost of ending inventory Cost of ending inventory = Net production cost x % of ending inventory =147,760 x 20% 29,552
(60 % of input in dept 1)
o additional cost & Joint production cost arket expenses 8,100 ales value 1.20 per unit
GAMMA Loss
APLHA BETA
Allocation of Joint Production cost 44,400
75,600 120,000
192,000
(118,208) 73,792
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