Acma project report
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1. The document discusses joint products, joint costs, and by-products. Joint products are multiple products generated from a single production process simultaneously. Joint costs are costs that benefit two or more products during production. By-products have little value compared to the main product. 2. Common methods for allocating joint costs include physical measurement, which allocates costs based on units or weight of each product, and relative sales value. By-products typically have their net value deducted from the cost of the main product. 3. In conclusion, the key difference between joint products and by-products is that joint products each have significant value, while a by-product has insignificant value compared to the main product. Joint
Acma project report
- 1. ACMA JIONT PRODUCTS AND BY PRODUCTS P R O J E C T R E P O R T T O P R O F . R M T S E C T I O N : A F - 1 2 7 / 2 2 / 2 0 1 8 M.TOUSEEF AFZAAL R1F16ASOC0027 OSAMA TARIQ R1F16ASOC0041
- 2. Product: Definition: A productis the item offered for sale. A productcan be a serviceor an item. Itcan be physicalor in virtual or cyber form. Every productis made at a cost and each is sold at a price. The price that can be charged depends on the market, the quality, the marketing and the segment that is targeted. Joint Product: Joint products are multiple products generated by a single production process at the same time. These products incur undifferentiated joint costs until a split-off point, after which each product incurs separate processing. Prior to the split-off point, costs can only be allocated to the joint products. Joint Cost: Definition: Joint costs are costs that are incurred from buyingor producing two productsat the sametime. In cost accountingterms, joint costs have the same cost object. What does joint cost mean? Manufactures incur many costsin the production process. It is the cost accountant’s job to trace these costs back to a certain productor process(cost object) duringproduction. Somecosts cannotbe traced back to a single cost object. Some costs benefit more than one productor processin the manufacturingprocess. These costs are called jointcosts. Almost all manufacturersincur jointcosts at some levelthe manufacturingprocess. Example:
- 3. Take shippingcosts for example. Often time’s manufacturerswillship a productto customerswith advertisementsor catalogs in the package. The shippingcost benefits both the productaswell as the advertisingcampaign. Even though the cost of shipping the catalog might be insignificantcompared to the cost of shipping the product, the cost is still shared between the two departments. Managerscan choose to split these joint costs up however they wantto. They could allocate all of the joint costs to shippinggoods costs or advertisingcosts. It doesn’t matter how managerschoose to allocate the costs internally. If the company isissuing GAAP based financial statements on the other hand, the joint costs must be allocated to the productsor departmentsbenefiting from the costs either on a physical basis or a value basis. Most of the time a physical basis is used to allocate joint costs because it is less subjective than the valuebasis. Joint Cost Allocation Methods: Joint cost is the manufacturingcost incurred on a joint production process which takes common inputsbutsimultaneously producesmultipleproducts called joint-productse.g. processingof crudeoil simultaneously yields gasoline, diesel, jet fuel, lubricants and other products. In order to allocate costs to such joint products, costs accountantsemploy oneof the several cost allocation methods. Most common of those methodsare: Physical Measurement Method: Joint costs are allocated based on number of units or physical quantity such as weight, volumeor length of each productrelativeto total production. This method can be represented in the followingformula: Cost Allocated to a Joint Quantity of the Product × Total Joint
- 4. Product= Quantity of Total Production Costs This method is suitable where physical quantity of joint-productsclosely reflects their costs e.g. differentshades of a paint obtained from a single process may be allocated costs using physicalquantity method. By-Product: Definition: A by productis a secondary unit produced in a joint production process that has little value in relation to the main productbeing produced. In other words, it’s a unit that is created inadvertently during the process of manufacturing another product. Examples: Byproducts occur in almostall industries not justmanufacturing. Take farming for example. Dairy farmers breed and raise cows to produce milk in order to sell it to grocery stores, restaurants, and distributors. What is a byproductof cattle? Manure. The farmer isn’ttrying to starta manure
- 5. farm. He or sheis interested in producing milk, but the manure is created during the process. The manure doesn’thave the same value that the milk does, but it does still have value. Farmers typically sell manure to landscapers or fertilizer companies that process the wasteinto fertilizer for farms, greenhouses, and homegardens. There are numerous other processes thatcreate useful by products. Take the logging industry for instance. The main products of this industry arewhole logs, but every tree has branches and smaller sections that can’t be used as full logs. These sections are typically ground up in a wood chipper to make wood chips. These are then sold to professionallandscapers and homegarden enthusiasts. What does by-product mean? Unfortunately not all by-products havethe samesalability and value as the dairy farmers’ and loggers’ operations. Someby-products aresimply wastethat can’t be used for anything. Take a nuclear power plant for example. The plant generates electricity using a nuclear process that produces nuclear waste. Not only is this material not salable, it is hazardous to store and disposeof. Companies must build highly specialized facilities to store this material and hire employees who can take caution in handling, transporting, and disposing of it.
- 6. Conclusion: Joint products are two or more products separated during a process, each of which have a significant valued compared to the other. A by-productis an incidental product froma process which has an insignificant value compared to the main product. The split off point or separation point is the point at which joint products and by-products becomeseparately identifiable. Costincurred up to this point is called joint costs or common costs. "Physicalmeasurement" and "relative sales value" are the main methods of apportioning joint costs. The relative sales value method is the mostcommonly used because it assumes that all products achieve the sameprofit margin. The most common method of accounting for by-products is to deduct the net realizable value of the by-productfromthe cost of the main product.