It is the cost accountant’s job to trace these costs back to a certain product or process (cost object) during production. Some costs cannot be traced back to a single cost object. Some costs benefit more than one product or process in the manufacturing process. These costs are called Joint cost.
What is the difference between joint cost and by products?
A joint product is manufactured consciously and simultaneously along with the main product, whereas the by-product is simply an incidental result of the manufacturing of the main product.
Which is an example of joint products?
Few examples of joint products are: Processing of crude oil to obtain gasoline, diesel, asphalt, jet fuel and lubricants etc. Production of butter, cheese and cream from milk. Different grades of wood obtained from a same kind of tree.
How do you do joint costing?
How to Allocate Joint Costs
- Allocate based on sales value. Add up all production costs through the split-off point, then determine the sales value of all joint products as of the same split-off point, and then assign the costs based on the sales values.
- Allocate based on gross margin.
How is apportioned cost calculated?
In order to apportion the cost of electricity to one specific department, you simply multiply the amount of the overhead by the number of employees in that department, then divide that by your total number of employees.
Does joint cost include fixed cost?
Joint costs may include direct material, direct labor, and overhead costs incurred during a joint production process. A joint process is a production process in which one input yields multiple outputs.
When to use joint costs and common costs?
Sometimes, joint costs and common costs are used having identical meaning. However, both the terms have different meanings. Joint costs relate to a situation in which the factors of production by their basic nature result in two or more products.
What’s the difference between by-product costing and joint product costing?
By-product costing and joint product costing. A joint cost is a cost that benefits more than one product, while a by-product is a product that is a minor result of a production process and which has minor sales.
How are joint costs and net profit calculated?
Hence, total costs are assessed to calculate average unit cost and net profit for the total operation. It leads to same unit cost to all joint products. If high-grade joint products are sold on the basis of average unit cost, the customers will be benefited and vice versa. The following formula is used to calculate average unit cost. 3.
Which is the best method for joint cost allocation?
For products that need further processing, NRV method is more suitable because it takes into account, the additional costs needed to further process and sell the joint products. Under this method, joint cost is allocated to products using the following formula:
