Get Short notes on Joint and By-Products for CA IPCC Costing. Joint and By Products are complications that can occur within the context of process costing.
Definitions: Joint and By Produts
Joint products are two or more products separated in the course of processing, each having a sufficiently high saleable value to merit recognition as the main product.
- Joint products include products produced as a result of the oil-refining process, for example, petrol and paraffin.
- Petrol and paraffin have similar sales values and are therefore equally important (joint) products.
By-products are outputs of some value produced incidentally in manufacturing something else (main products).
- By-products, such as sawdust and bark, are secondary products from the timber industry (where timber is the main or principal product from the process).
- Sawdust and bark have a relatively low sales value compared to the timber which is produced and are therefore classified as by-products
Accounting treatment for joint products:
The distinction between Joint and By-Products is important because the accounting treatment of joint products and by-products differs.
- Joint process costs occur before the split-off point. They are sometimes called pre-separation costs or common costs.
- The joint costs need to be apportioned between the joint products at the split-off point to obtain the cost of each of the products in order to value closing inventory and cost of sales.
- The basis of apportionment of joint costs to products is usually one of the following:
- sales value of production (also known as market value)
- production units
- Net realizable value.
Accounting treatment for by-products
As by-products have an insignificant value the accounting treatment is different.
- The costs incurred in the process are shared between the joint products alone. The by-products do not pick up a share of the costs, like normal loss.
- The sales value of the by-product at the split-off point is treated as a reduction in costs instead of an income, again just the same as normal loss.
- If the by-product has no known value at the split-off point but does have a value after further processing, the net income of the by-product is used to reduce the costs of the process.
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