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Cost Allocation:
Joint Products and
Byproducts
Separable costs
2009 Foster School of Business Cost Accounting L.DuCharme 3
Joint-Cost Basics
Coal
Timber (logs)
Main Products
Joint Products Byproducts
High Low
Sales Value
Approach 1: Approach 2:
Market based Physical measure
10,000 units of A at a
selling price of $10 = $100,000
Joint processing
cost is $200,000
10,500 units of B at a
selling price of $30 = $315,000
11,500 units of C at a
selling price of $20 = $230,00 Splitoff point
2009 Foster School of Business Cost Accounting L.DuCharme 10
Allocating Joint Costs Example
(Sales-Value-at-Splitoff method)
A B C Total
Sales Value $100,000 $315,000 $230,000 $645,000
Allocation of
Joint Cost:
100 ÷ 645 31,008
315 ÷ 645 97,674
230 ÷ 645 71,318
200,000
Gross margin $ 68,992 $217,326 $158,682 $445,000
Step 3:
Deduct the expected separable costs from the
total costs to obtain the joint-cost allocation.
Step 1:
Compute the overall gross-margin percentage.
Expected final sales value $708,000
Deduct joint and separable costs 333,000
Gross margin $375,000
Gross margin percentage:
$375,000 ÷ $708,000 = 52.966%
2009 Foster School of Business Cost Accounting L.DuCharme 20
Constant Gross-Margin
Percentage NRV Method
Step 2:
Deduct the gross margin.
Sales Gross Cost of
Value Margin Goods sold
Product A1: $120,000 $ 63,559 $ 56,441
Product B1: 346,500 183,527 162,973
Product C1: 241,500 127,913 113,587
Total $708,000 $375,000 $333,000
($1 rounding)
2009 Foster School of Business Cost Accounting L.DuCharme 21
Constant Gross-Margin
Percentage NRV Method
Step 3:
Deduct separable costs.
Cost of Separable Joint costs
goods sold costs allocated
Product A1: $ 56,441 $ 35,000 $ 21,441
Product B1: 162,973 46,500 116,473
Product C1: 113,587 51,500 62,087
Total $333,000 $133,000 $200,000
2009 Foster School of Business Cost Accounting L.DuCharme 22
Constant GM % NRV method
It uses a
It is simple.
meaningful basis.
2009 Foster School of Business Cost Accounting L.DuCharme 25
Choosing a Method
Method A:
The production method recognizes byproducts
at the time their production is completed.
Method B:
The sale method delays recognition of
byproducts until the time of their sale.