5 COSTING, JOIN’ . Product 1 Product 2 —_Total Sales $2,400 $2,400 $4,800 Proportion of common cost apportioned 2,400) 2.400) . 4,800 : $ $ $ t ‘Apportioned cost 1,500 1,500 3,000 Sales 2400 2'400 4,800 Profit 1,800 Profilsales ratio 37.5% 37.5% 37.5% ‘A comparison of the gross profit margin resulting from the application of the above methods for allocating common costs will illustrate the greater acceptability of the relative sales value apportionment ‘method. Physical measurement gives a higher profit margin to product 1, not necessarily because product 1 is highly profitable, but because it has been given a smaller share of common costs. QUESTION Joint products In process costing, a joint product is ‘AA product which is produced simultaneously with other products but which is of lesser value than ; at least one of the other products BA product which is produced simultaneously with other products and is of similar value to at least ‘one of the other products, © Aproduct which is produced simultaneously with other products but which is of greater value than any of the other products, DA product produced jointly with another organisation ANSWER ‘The correct answer is B, a product which is of similar value to at least one ofthe other products, : QUESTION Sales value method . ‘Two products (W and X) are created from a joint process. Both products can be sold immediately after splitoff, There are no opening inventories or work in progress. The following information is available for last period. . Total joint production costs $776,160 i Product Production units Sales units Selling price per unit Ww 12,000 10,000 $10 x 10,000 8,000 $2 Using the sales value method of apportioning joint production costs, what was the value of the closing inventory of product x for last period? : A $68,992 ‘ B $70,560 c $76,032 D 877,616 : ANSWER ‘The correct answer is D. Sales value of production: ; Bey 243Product W (12,000 x $10) $120,000 Product X (10,000 x $12) $120,000 Therefore joint costs are apportioned in the ratio 1:1. ‘Amount apportioned to product X (776,160/2) $388,080 10% of $388,080 = $77,616 20% of X's production is in closing inventory Make sure you spit the joint costs according to sales value of prices or sales value af sales. Bie eee e Ue cre een Ty ‘This example illustrates how joint products are incorporated into process accounts. 3.1 Example: joint products and process accounts ‘Three joint products are manufactured in a common process, which consists of two consecutive stages. ‘Output from process 1 is transferred to process 2, and output from process 2 consists of the three joint products, Hans, Nils and Bumpsydaisies. All joint products are sold as soon as they are produced. Data for period 2 of 20X6 are as follows, Process 1 Process 2 Opening and closing inventory None None Direct material (30,000 units at $2 per unit) $60,000 sat Conversion costs $76,500 $226,200 Notmal iss 10% of input 10% of input ‘Scrap value of normal loss. $0.50 per unit ‘$2 per unit Output 26,000 units 10,000 units of Han 7,000 units of Nil 6,000 units of Bumpsydaisy Selling prices are $18 per unit of Han, $20 per unit of Nil and $30 per unit of Bumpsydaisy Required (@) Prepare the Process 1 account. (b) Prepare the Process 2 account using the sales value method of apportionment. (c) Prepare a profit statement for the joint products. Solution (@) Process 1 equivalent units Total Equivalent units units Output to process 2 26,000 26,000 Normal foss 3.900 ee Abnormal loss (balance) x 1,000 30,000 27,000©) 95 COSTING, JOINT PRODUCTS AND BY-PR Costs of process 1 Direct materials ‘Conversion costs Less scrap value of normal loss (3,000 x $0.50) $135,000 ast per equivalent unit = ==> = Cost per eat 27,000 7 88 PROCESS 1 ACCOUNT $ Direct materials 60,000 Output to process 2 (26,000 x $5) Conversion costs 76,500 Normal lass (scrap value) ‘Abnormal loss a/c (1,000 « $5) 136,500 Process 2 equivalent units Total Equivalent units units Units of Hans produced 10,000 10,000 Units of Nils produced 7,000 7,000 Units of Bumpsydaisies produced 6,000 6,000 Normal loss (10% of 26,000) 2,600 0 ‘Abnormal loss (balance) ea) 200 26,000 Costs of process 2 $ Material costs ~ from process 1 130,000 Conversion costs, 226,200 Less scrap value of normal oss (2,600 x $2) $351,000 23,400 Cost of goad output (10,000 + 7,000 + 6,000) = 23,000 units x $15 = $345,000 ‘The sales value of joint products, and the apportionment of the output costs of $345,000, Is as follows. Cost per equivalent unit = $15 Sales voiue Costs (process 2) 5 % $ Hans (10,000 x $18) 180,000 36 124,200 Nils (7,000 x $20) 149,000 28 96,600 Bumpsydaisy (6,000 x $30) 180,000 2S ao 500,000 100, PROCESS 2 ACCOUNT $ $ Process 1 materials 130,000 Finished goods accounts Conversion costs 226,200 — Hans = Nits ~ Bumpsydaisies Normal loss (sorap value) ‘Abnormal loss a/c 245246 (©) PROFIT STATEMENT Hans Nils Bumpsydaisies $000 $000 $000 Sales 180.0 140.0 180.0 Costs: 124.2 96.6 124.2 Profit 55.8 43.4 55.8 Profit/ sales ratio 31% 31% 31% QUESTION Unit basis of apportionment Prepare the Process 2 account and @ profit statement for the joint products in the above example using the units basis of apportionment. ANSWER PROCESS 2 ACCOUNT $ $ Process 1 materials 130,000 Finished goods accounts Conversion costs 226,200 ~ Hans (10,000 x $15) 150,000 ~ Nils (7,000 x $15) 105,000 ~ Bumpsydaisies (6,000 x $15) 90,000 Normal loss (scrap value) 5200 Abnormal loss a/c x 356,200 356,200 PROFIT STATEMENT Hans Nils Bumpsydaisies 000 ‘$000 $000 Sales 180 140 180 Costs 150 105 90 Profit 30 35 90 Profil sales ratio 16.7% 25% 50% QUESTION Joint costs and process casting Polly Co operates a process costing system, the final output from which is three different products: Bolly, Dolly and Folly. Details of the three products for March are as follows, Bolly Dolly Folly Selling price per unit $25 $18 $32 Output for March 6,000 units 10,000 units 4,000 units 22,000 units of material were input to the process, costing $242,000. Conversion costs were $121,000. No losses were expected and there were no opening or closing inventories, Using the units basis of apportioning joint costs, what was the profit or loss on sales of Dolly for March? A $(1,500) © $50,306 B $30,000 D $15,000 ANSWER The correct answer is D. Total output 20,000 units (6,000 + 10,000 + 4,000) Total input 22,000 units ‘Abnormal loss 2,000 units Total cost = $363,000 $363,000 Cost per unit = = $16.50 22,000CHAPTER 12 // PROCESS COSTING, JOINT PRODUCTS AND BY-PRODUCTS Cost of good output = 20,000 units x $16.50 = $330,000, Units of Dolly Amount apportioned to Dally = Units @fDOIY_ $339,000, spporion Y Total’ good’ units aa = (10,000/20,000) x $330,000 = $165,000 Profit for Dolly = Sales Revenue ~ apportioned costs 10,000 x $18) - $165,000 $15,000 esininasisiinsninintiannininiasiliiisinniiiitiiiiaiistinnnnininiians [4] Pe Vettel Leura as yee cl} 4.1 Introduction °)) {The most common method of accounting for by-products isto deduct the net realisable value ofthe by- | + product trom the cost of the main products. : ‘A by-product has some commercial value and any income generated from it may be treated as follows. (a) Income (minus any post-separation further processing or selling costs) from the sale of the by- product may be added to sales of the main product, thereby increasing sales turnover for the Period. (b) The sales of the by-product may be treated as a separate, incidental source of income against Which are set only post-separation costs (if any) of the by-product. The revenue would be recorded in the Income statement as ‘other income’. (c)__ The sales income of the by-product may be deducted from the cost of production or cost of sales of the main product. (a) The net realisable value of the by-product may be deducted from the cost of production of the ‘main product, The net realisable value is the final saleable value of the by-product minus any post-separation costs. Any closing inventory valuation of the main product or joint products would therefore be reduced. ‘The choice of method (a), (b), (c) or (G) willbe influenced by the circumstances of production and ease of calculation, as much as by conceptual correctness, The method you are most likely to come across in examinations Is method (<). An example will help to clarify the distinction between the different methods. 4,2 Example: Methods of accounting for by-products: During November 20X3, Splatter Co recorded the following results ‘Opening inventory ‘main product P, nil by-product Z, nil Cost of production $120,000 ‘Sales of the main product amounted to 90% of output during the period, and 10% of production was held as closing inventory at 30 Novernber. Sales revenue from the main product during November 20X2 was $150,000. AA by-product 2 is produced, and output had a net sales value of $1,000. Of this output, $700 was sold during the month, and $300 was still in inventory at 30 Novernber. Required Calculate the profit for November using the four methods of accounting for by-products. 247 iy