Section C: Joint Products and Byproducts
What are byproducts?
Byproducts are the low-value products that occur naturally in the process of producing higher value products. They are, in a sense, accidental results of the production process.
What are joint costs?
Joint costs are the costs incurred prior to the splitoff point.
What are separable costs?
Separable costs are costs incurred after the splitoff point.
What are the methods of allocating costs to joint products?
1. Relative Sales Value at Splitoff Method (or Gross Market Value Method) 2. Estimated Net Realizable Value (NRV) Method 3. Physical Measure and Average Cost Methods 4. Constant Gross Profit (Gross-Margin) Percentage Method
What are the two methods of accounting for byproducts?
1. The production method: inventory the byproduct costs (recognized at production) - the costs that are allocated to the byproducts are inventoried, and the sales revenue received from the sale of the byproduct is treated as a reduction of the costs of production of the main product. 2. The sales method: revenue from the byproduct (recognized at time of sale) - all of the costs of production are allocated to the main product or joint products in inventory.
What are joint products and what is the splitoff point?
Joint products occur when one production process leads to the production of two or more finished products. These products are not identical, but they share the same production process up to what is called the splitoff point. This is the point at which the two products stop sharing the same process and become different, identifiable products.
