Paper F2 Management Accounting

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Paper F2 Management Accounting 2018/11/23

Chapter 12 Process costing, joint products and by products 2018/11/23

Allocating joint costs Accounting treatments Chapter Preview Process costing, joint & by-products Joint products By-products Allocating joint costs Accounting treatments 2018/11/23 Ji Weili, JXUFE

Joint products and by-products forestry For anyone struggling to follow my train of thought here…the joint products are wood and paper, the by-products are wood shavings for your hamster cage!! By - product 2018/11/23 Ji Weili, JXUFE

Joint products and by-products Process (Joint costs) Inputs Product 2 By-product This slide explains the basic ideas – the next gives more specific details Split-off point 2018/11/23 Ji Weili, JXUFE

Joint products and by-products - accounting Substantial sales value Apportion joint costs Various methods: as specified in question Relatively low sales value Secondary to process Do not allocate costs Various methods 2018/11/23 Ji Weili, JXUFE

Joint Costs A single cost incurred in producing or purchasing two or more different products. Similar to an indirect expense since it is shared among more than one cost object. Example: The cost of crude oil is a joint cost for many petrochemical products. 2018/11/23 Ji Weili, JXUFE

Allocating Joint Costs Allocation If we allocate the joint costs of raising the animal to the two products based on weight, which product would receive the largest cost allocation? Hamburger, because there is more of it. 2018/11/23 Ji Weili, JXUFE

Allocating Joint Costs Allocation If we allocate the joint costs of raising the animal to the two products based on sales value, would the steak receive a greater portion of the cost allocation? Yes, steak has a higher sales value than hamburger. 2018/11/23 Ji Weili, JXUFE

Allocating Joint Costs on a Value Basis Product One Sales value = $80,000 $200,000 Joint Cost Product Two Sales value = $200,000 Product Three Sales value = $120,000 Allocate the $200,000 joint cost based on sales value. 2018/11/23 Ji Weili, JXUFE

Allocating Joint Costs on a Value Basis 2018/11/23 Ji Weili, JXUFE

Joint products in process accounts Example: P248-3.1 Data for the period are as follows. process 1 process 2 Direct material(3000units) $60 000 / Conversion costs $76 500 $226 200 Normal loss 10% of input Scrap value of normal loss $0.5 $2 Output (units) 26 000 10 000 A 7 000 B 6 000 C 2018/11/23 Ji Weili, JXUFE

Accounting for by-products The sales of the by-product may be treats as: Added to sales of the main product Treated as a separate, incidental source of income Deducted from the cost of production or cost of sales of the main product Net realisable value of the by-product may be deducted from the cost of production of the main product Example: P251-4.2 2018/11/23 Ji Weili, JXUFE

End of Chapter 11 2018/11/23 Ji Weili, JXUFE

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