Scribd Logo
Upload

Welcome to Scribd!

  • 45 views

    Cost Allocation Challenges (2) - 2

    Uploaded by

    YB

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Cost Allocation Challenges (2) - 2

    Uploaded by

    YB
    45 views15 pages

    Original Title

    Cost Allocation Challenges(2)-2.pptx

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    45 views15 pages

    Cost Allocation Challenges (2) - 2

    Uploaded by

    YB

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 15

    Cost Allocation Challenges

    and Calculating Profitability


    Joint Products

    2012 Pearson Prentice Hall. All rights reserved.


    Joint Cost Terminology
    Joint costscosts of a single production process that
    yields multiple products simultaneously
    Splitoff pointthe place in a joint production
    process where two or more products become
    separately identifiable
    Separable costsall costs incurred beyond the
    splitoff point that are assignable to each of the now-
    identifiable specific products

    2012 Pearson Prentice Hall. All rights reserved.


    Joint Cost Terminology
    Categories of joint process outputs:
    1. Outputs with a positive sales value
    2. Outputs with a zero sales value
    Productany output with a positive sales value, or an output that
    enables a firm to avoid incurring costs
    Value can be high or low

    2012 Pearson Prentice Hall. All rights reserved.


    Joint Cost Terminology
    Main productoutput of a joint production process that yields one
    product with a high sales value compared to the sales values of the other
    outputs
    Joint productsoutputs of a joint production process that yields two or
    more products with a high sales value compared to the sales values of any
    other outputs

    2012 Pearson Prentice Hall. All rights reserved.


    Joint Cost Terminology
    Byproductsoutputs of a joint production process that have low sales
    values compare to the sales values of the other outputs

    2012 Pearson Prentice Hall. All rights reserved.


    Reasons for Allocating Joint Costs
    Required for GAAP and taxation purposes
    Computation of inventoriable costs and cost of goods sold for financial
    accounting and tax reporting
    Internal analysis of divisional profitability
    Cost-based contracting
    Insurance settlements
    Required for rate and price regulations
    Litigation

    2012 Pearson Prentice Hall. All rights reserved.


    Joint Cost Allocation Methods
    Market-basedallocate using market-derived data (dollars):
    1. Sales value at splitoff
    2. Net realizable value (NRV)
    3. Constant gross-margin percentage NRV ( optional material)
    Physical measuresallocate using tangible attributes of the products,
    such as pounds, gallons, barrels, and so on

    2012 Pearson Prentice Hall. All rights reserved.


    Sales Value at Splitoff Method
    Uses the sales value of the entire production of the accounting period to
    calculate allocation percentage
    Ignores inventories

    2012 Pearson Prentice Hall. All rights reserved.


    Joint Cost Illustration Data

    2012 Pearson Prentice Hall. All rights reserved.


    Joint Cost Illustration Overview
    20,000
    g sales
    5,000 g
    inventory

    30,000
    g sales

    45,000 g
    inventory

    2012 Pearson Prentice Hall. All rights reserved.


    Sales Value at Splitoff Illustration

    2012 Pearson Prentice Hall. All rights reserved.


    Net Realizable Value Method
    Allocates joint costs to joint products on the basis of relative NRV of total
    production of the joint products
    NRV = Final Sales Value Separable Costs

    2012 Pearson Prentice Hall. All rights reserved.


    Net Realizable Value Method
    Overview

    $8/g 12,000 g
    $25/g
    sales

    8,000 g
    inventory
    $4/g

    $22/g 45,000
    g sales

    5,000 g
    inventory

    2012 Pearson Prentice Hall. All rights reserved.


    Net Realizable Value Method
    Illustrated

    2012 Pearson Prentice Hall. All rights reserved.


    Net Realizable Value Method
    Illustrated

    2012 Pearson Prentice Hall. All rights reserved.

    You might also like