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This page provides you a list of methods of costing by-products. It does not have the explanations and computations. To read a particular by-products costing method in detail, you can click the link of that method provided in the list. The methods used for costing by-products can be divided into following two categories:
The methods under which no joint production cost is allocated to by-productsThe methods that fall under this category do no attempt to allocate a joint production cost to the by products. The revenue that results from the sale of by-products is credited to the income or to the cost of the main product. In some situations, any cost incurred on the by-products after split-off point is offset against the revenue realized from the sale of by-products. Under these methods, some independent value may be assigned to the by products for the purpose of inventory costing. The commonly used methods under this category are listed below: Method 1: Recognition of gross revenue methodUnder this method, the by-product revenue is listed on the income statement using one of the following four approaches:
Click here to read more about recognition of gross revenue method Method 2: Recognition of net revenue method of costing by-productsUnder net revenue method, revenue from sale of by-products less addition processing cost and marketing and administrative costs is presented on the balance sheet using one of the four approaches listed under recognition of gross revenue method. Click here to read more about recognition of net revenue method. Method 3: Replacement cost method of costing by-productsThe replacement cost method is mostly used by organizations that use by-product somewhere within their own manufacturing processes. Click here to read more about replacement cost method The methods under which some joint production cost is allocated to the by-productsThe methods under this category allocates a portion of joint production cost to the by-products. Under these methods, inventory costs of by products is computed on the basis of joint cost allocated plus any processing cost incurred subsequent to recovery or split-off point. The commonly used method under this category is given below: Method 4: The market value or reversal cost method of costing by-productsThe market value or reversal cost method credits the manufacturing cost of the main product by estimated value of the by-product at the time of recovery. It is somehow identical to the recognition of gross revenue method. Click here to read more about market value or reversal cost method More from Joint products and by-products (explanations):
3. By-product costing that uses the asset recognition method(s) creates:A. Expense recognition in the current period.B. A distortion of net income.C. An adjustment on the income statement.D.An inventory value in the period in which the by products are producedE. A result that is not compatible with GAAP.. Related Textbook Solutions See more5.Zenon Chemical, Inc., processes pine rosin into three products: turpentine,paint thinner, and spot remover. During May, the joint costs of processingwere $240,000. Production and sales value information for the month were asfollows:ProductUnits ProducedSales Value at Splitoff PointTurpentine6,000 liters$60,000Paint thinner6,000 liters50,000Spot remover3,000 liters25,000Required:Determine the amount of joint cost allocated to each product(A)If the physical-measure method is used.(B)If Sales Value at Split off Point is used6.Red Sauce Canning Company processes tomatoes into catsup, tomato juice,and canned tomatoes. During the summer of 20x3, the joint costs ofprocessing the tomatoes were $420,000. There was no beginning or endinginventories for the summer. Production and sales value information for thesummer were as follows:ProductCasesSales Valueat Splitoff PointSeparable CostsSelling PriceCatsup100,000$6 per case$3.00 per case$28 per caseJuice150,0008 per case5.00 per case25 per caseCanned200,0005 per case2.50 per case10 per caseRequired:Determine the amount allocated to each product if the estimated netrealizable value method is used, and compute the cost per case for eachproduce.5 7.ABC Corporation uses a process in which the following products emerge at the split-offpoint:ProductsUnits ProducedSales Value at Split-off PointA200$1.00 per unitB400$0.95 per unitC400$3.50 per unitThe total joint costs amount to $1,000.00 Product A is processed further by incurring anadditional cost of $200.00 resulting in the production of the following three products:ProductsUnits ProducedSales Value at Split-off PointA1100$3.00 per unitA250$2.00 per unitA350$0.50 per unitA3 is a by-product and its net realizable value is deductible from the joint costs allocated toproduct A.Required:A.Allocate joint costs using the following methods:1.Physical measure2.Sales value at split-off point3.Net realizable value, assuming that product A is not saleable at the split-off point.B.Assuming that (1) product A was saleable at the split-off point and that (2) you are thenewly-appointed manager in-charge of the product and have been asked to assess whetheryour predecessor’s decision to process it further was right. Would you use any one of theappropriate joint cost allocation methods in your assessment? If yes, indicate which oneand why? If not, why not? What would be your assessment?6 Upload your study docs or become a Course Hero member to access this document Upload your study docs or become a Course Hero member to access this document End of preview. Want to read all 8 pages? Upload your study docs or become a Course Hero member to access this document Cost Accounting, sales value, Splitoff Point |
The two asset recognition methods used for by-product costing are the
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