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| Corporate practice bd |
Joint- Product by- product?
Main product:
When a joint production process yield one product with high total sales value, compared with total sales value of others products of the process, that product is called a main product.
Joint product
When a joint production process yield two or more product with high total sales value, compared with total sales value of others products if any, those products are called a joint product.
By -Product
When a joint production process yield two or more product with low total sales value, compared with total sales value of the main products or joint products are called by- product.
Joint cost
A joint cost may be defined as that cost which arises from the common production processing or manufacturing of products produce from the same process it is called joint cost.
Calculation of Joint cost
Sales value amount in = ***** [when further processing exist]
Less: % of gross profit= (******)
Total cost with further cost= *****
Less: Further processing cost= (*****)
Result-Joint cost at split of point= *****
Market value: =Total units produce@ per unit selling price
Product cost = (Joint cost + Further processing cost)
Calculation Budgeted (profit /Loss)
Sales value amount in = ***** [when further processing exist]
Less: Allocation Joint cost= (******)
Less: Further processing cost= (*****)
Result-Budgeted profit/Loss = *****
Method of Allocating Joint cost
Joint production cost, incurred up to the split of point, can be allocated to joint products by using one of the following - method-
01. Market value or sales value method:
Market value or sales value methods are divided into two categories such as-
(A)Ultimate Market value [where no exist further processing cost)
Say for example, 01.
Product units produce - selling price - Ultimate market price
A =20000 20 4, 00,000.000
B =10000 10 1,00,0000.000
Total =30000 30 5, 00,000.000
Assume there Joint cost=Tk.1, 20,000.000
Requirement
Allocate Joint cost between two produce A & B under Market value method
Joint cost allocation of Product A= (1, 20,000/5,00,000.00)*4,00,000.00
=Tk.96, 000.000
Joint cost allocation of Product B = (1, 20,000/5,00,000.00)*1,00,000.00
=Tk.24, 000.000
Total Joint cost allocation (96,000+24,000) =1, 20,000.000(proved)
(B)Hypothetical market value/NRV Method [where exist further processing cost)
Say for example, 02
Product Ultimate market price- further process cost - Net realizable value (NRV)
A 4, 00,000.000 =10,000.000 = 3, 90,000.000
B 1,00,0000.000 =20,000.000 = 80,000.000
Total 5, 00,000.000 =30,000.000 = 4, 70,000.000
Assume there Joint cost=Tk.1, 20,000.000
Requirement
Allocate Joint cost between two produce A & B under (Hypothetical market value/NRV Method)
Joint cost allocation of Product A= (1, 20,000/4,70,000.00)*390000.00
=Tk.99, 574.000
Joint cost allocation of Product B = (1, 20,000/4,70,000.00)*80,000.00
=Tk.20, 426.000
Total Joint cost allocation= (99,574+20,426) =1, 20,000.000(proved)
Total cost of two produce A & B
Product-A = (Joint cost+Further processing cost)
=(99,574+10,000)=1,09,574.000
Product-B = (Joint cost+Further processing cost)
=(20,426+20,000)=40,426.000
02. The quantitative or Physical unit method:
A. Weight(say for, kilo gram)
B.Quantity (say for, physical unit)
C.Volume(say for, Cubic feet) [ 3.281 feet = 1 meter, ]
[ 10.76 sft=1 square meter,]
[ 35.31 cft=1 cubic meter]
Say for example, 03.
Product Kg (Killo gram) - selling price - Ultimate market price
A =20000 20 4, 00,000.000
B =10000 10 1,00,0000.000
Total =30000 30 5, 00,000.000
Assume there Joint cost=Tk.1, 20,000.000
Requirement
Allocate Joint cost between two produce A & B under Market value method
Joint cost allocation of Product A= (1, 20,000/30000 kg)*20000 kg
=Tk.80, 000.000
Joint cost allocation of Product B = (1, 20,000/30000kg)*10000 kg
=Tk.40, 000.000
Total Joint cost allocation (80,000+40,000) =1, 20,000.000 (proved)
Total Cost & Cost Per unit of two produce A & B as follows-
Product-A = (Joint cost+Further processing cost)
= (80,000+00,000)=80,000.000
Cost Per unit= (80,000/20,000 kg) =4.00
Product-B = (Joint cost+Further processing cost)
= (40,000+00,000)=40,000.000
Cost Per unit= (40,000/10,000 kg) =4.00
03. Average unit cost method:
Say for example, 04
Product units produce - selling price - Ultimate market price
A =20000 20 4, 00,000.000
B =10000 10 1,00,0000.000
Total =30000 30 5, 00,000.000
Assume there Joint cost=Tk.1, 20,000.000
Requirement
Allocate Joint cost between two produce A & B (under Average unit cost method)
Joint cost allocation
of Product A= (1, 20,000/30000 units*20000 units
=Tk.80, 000.000
Joint cost allocation
of Product B = (1, 20,000/30000 units*10000 units
=Tk.40, 000.000
Total Joint cost allocation (80,000.000+40,000) =1, 20,000.000(proved)
04. Weighted Average cost method:
Finished product of every kind is multiplied by weight factors to apportion the total joint cost to individual unit.
Say for example, 05
Product weight Factor - Units selling price - Ultimate market price
A =3.00 point 20,000.000 20 4, 00,000.000
B =12.00 point 10,000.000 10 1,00,0000.000
Total = 15.00 point 30,000.000 30 5, 00,000.000
Assume there Joint cost=Tk.1, 20,000.000
Requirement
Allocate Joint cost between two produce A & B (Under Weighted Average cost method)
Under this method we should calculate weighted unit measurement as under-
For product-A=20,000 units@ 3 point=60,000.00 (weighted unit)
For product-B=10,000 units@ 12 point=1,20,000.00 (weighted unit)
Total=1,80,000.00 (weighted unit
Joint cost allocation of Product A= (1, 20,000/1,80,000 (weighted unit)*60,000(weighted unit)
=Tk.40, 000.000
Joint cost allocation of Product B = (1, 20,000/1,80,000 (weighted unit)*120,000.00(weighted unit)
=Tk.80, 000.000
Total Joint cost allocation (40,000.000+80,000) =1, 20,000.000 (proved)
05. Constraint gross margin % of cost allocation method:
Say for example, 06
Product units produce - selling price - Ultimate market price
A =20000 20 4, 00,000.000
B =10000 30 3,00,000.000
Total =30000 50 7, 00,000.000
Assume there, Joint cost=Tk.1, 20,000.000
Further cost:
A=Tk.10,000.000
B=Tk.10,000.000
Requirement:
Allocate Joint cost between two produce A & B (under Constraint gross margin Method)
Here we should calculate Gross margin to allocation joint cost as under-
Ultimate market value=Tk.7,00,000.000 (Given)
Less: Joint cost=Tk.(1,20,000.000)
Less: Further cost=Tk.(20,000.000)
Result create gross margin = Tk.5,60,000.000
Gross margin % on sales = Tk.(5,60,000.000/7,00,000.00)*100
= 80%
Statement showing the allocation of Joint cost on the basis of Constraint gross margin Method
Product-units - selling price - Market Value-(Less Gross margin 80%) - Further cost- Allocation Joint cost -per unit
A =20000 20 Tk.4, 00,000.000 Tk.3,20,000.000 Tk.10,000.000 Tk.70,000.000 =4.00
B =10000 10 Tk. 3,00,0000.000 Tk.2,40,000.000 TK.10,000.000 Tk.50,000.000 =6.00
Assume there, Joint cost=Tk.1, 20,000.000
Further cost:
A=Tk.10,000.000
B=Tk.10,000.000Say for example, 07
Product units produce - selling price - Ultimate market price
A =20000 20 4, 00,000.000
B =10000 30 3,00,000.000
Total =30000 50 7, 00,000.000
Assume there, Joint cost=Tk.1, 20,000.000
Further cost
A=Tk.10,000.000
B=Tk.10,000.000
Requirement
Allocate Joint cost between two produce A & B ( NRV after Constraint gross margin Method)
Here ,
Net realizable value (NRV) of two product
A=(4,00,000-3,20,000-10,000)=70,000.000
B=(3,00,000-2,40,000-10,000)=50,000.000
Total allocation Base for joint cost=1,20,000.000
Joint cost allocation of Product A= (1, 20,000/1,20,000.00)*70,000.000
=Tk.70,000.000
Joint cost allocation of Product B = (1, 20,000/120000.00)*50,000.000
=Tk.50, 000.00
Total Joint cost allocation (70,000+50,000) =1, 20,000.000(proved)
Total Cost & Cost Per unit of two produce A & B as follows-
Product-A = (Joint cost+Further processing cost)
= (70,000+10,000)=80,000.000
Cost Per unit= (80,000/20,000units) =4.00
Product-B = (Joint cost+Further processing cost)
= (50,000+10,000)=60,000.000
Cost Per unit= (60,000/10,000units) =6.00
Then Value of closing inventory say for example
Product A= (500 units@4.00) =Tk.2,000.000
Product B= 800 units@6.00) = Tk.4800.000
Value of closing inventory in total=(2,000.000+4800.000)= 6,800.000
Accounting for by product
Joint production process may yield not only joint products and main product but also by products
Method for Accounting by product
There are two method for accounting by product such as
01.Production Method
Under this method Net realized value(NRV) of by products are deducted from the Total manufacturing cost for obtaining net cost of goods sold
Say for example -NRV of by product :
Sales value of by product( 5000*10 per unit) =Tk.50,000.000
Less:Marketing & Admin cost=Tk.( 15,000.000)
Less: further processing cost=Tk.( 5000.000)
Net realized value(NRV) of by product=Tk.30,000.000
IF Joint cost=2,00,000.000
Less:(NRV) of by product=Tk.(30,000.000)
Result Net Joint cost =1,70,000.000
Say for example, 08
The wimax company produce two main product A & B also produce C is the by product of Main product -A
Others information
Sales product:
A=40,000 units@6 per unit,
B=40,000 units@6 per unit,
C=2,000@2 per unit
Total Manufacturing cost
A=Tk.2,50,000.000
B=Tk.2,75,000.000
production
A =50,000 units
B =60,000 units
Requirement
01.Calculate Gross margin & % of gross margin(using Production method of by product)
Solution:
Income statement for the wimax company LTD.
For the period 31.12.2021
Product(A) Product(B)
Sales value (40000*6 per unit) =2,40,000.000 2,40,000.000
Less: cost of goods sold
Total Manufacturing cost = 2,50,000.000 2,75,000.000
(Deduct) NRV of by product(2000*2.00per unit)= (4,000.000) 00000
Net Manufacturing cost = 2,46,000.000 2,75,000.000
(Deduct) main product closing stock (2,46,000/50,000)*10,000 =(49,200.000) (91,667.000) ( 2,75,000/60,000)*20,000 units
Cost of goods sold=1,96,800.000 1,83,333.000
Gross Margin = 43,200.000 56,667.000
Gross Margin % (43200/240000)*100, (56667/240000)*100 =18% 23.61%
02.Sales Method:
Sales by product under sales method may be grouped either-
A.Others sales
B.Others income
C. Deducted from cost of goods sold
Say for example, 09
The wimax company produce two main product A & B also produce C is the by product of Main product -B
Others information:
Sales product:
A=40,000 units@6 per unit,
B=40,000 units@6 per unit,
C=2,000@2 per unit
Total Manufacturing cost :
A=Tk.2,50,000.000
B=Tk.2,75,000.000
Production:
A =50,000 units
B =60,000 units
Requirement :
01.Calculate Gross margin & % of gross margin(using sales method of by product)
Solution:
Income statement for the wimax company LTD.
For the period 31.12.2021
Product(A) Product(B)
Sales value (40000*6 per unit) =2,40,000.000 2,40,000.000
Add :others sale of by product(C)
NRV of by product(2000*2.00per unit) 4,000.000 Total sales revenue = 2,40,0000 2,44,000.000
Less: cost of goods sold:
Total Manufacturing cost = 2,50,000.000 2,75,000.00 (Deduct) main product closing stock (2,50,000/50,000)*10,000 =(50,000.000) (91,667.000) ( 2,75,000/60,000)*20,000 units
Cost of goods sold=2,00,000.000 1,83,333.000
Gross Margin = 40,000.000 60,667.000
Gross Margin % (40,000/2,40,000)*100, (60,667/2,44,000)*100 =16.66% 24.86%
***The End****