Content
In manufacturing the main product ‘A’, a company processes the incidental waste into two byproducts X and Y. From the following data relating to the products you are required to prepare a comparative profit and loss statement showing the individual costs joint products are outputs from common inputs and a common production process. and other details. Under this method sales value of the by-product is deducted from total cost of production or cost of sales. The stock of the main product is valued on the total cost basis. Products M, N, O and P are produced from a common raw material.
This is one of those areas where there are lots of interesting overlaps between ecology and economics, but also interesting contrasts. For instance, ecologists consider all of the same sorts of production functions economists do , but we have different names for them. And we tend to use those production functions to ask different questions. For instance, it turns out that the conditions for stable coexistence of multiple competing species differ somewhat, depending on what production function each species uses. David Tilman once argued that this is the ultimate explanation for why there are so many species of animals and so few species of plants –different production functions for animals vs. plants. But it’s a difficult claim to test, in large part because we usually can’t be sure that we’re individuating resources the way the organisms do. But it’s not clear that that’s actually true (e.g., those marine algae that see different wavelengths of light as substitutable resources).
An appropriate method to determine the cost of each unique item produced is activity-based costing . All the costs incurred by a manufacturing company other than the cost of factory operations are collectively known as non-manufacturing costs. These include all selling, administrative, and financing costs; all these costs are deducted as expenses from sales revenues as they are incurred each period. Costs other than manufacturing costs are called period costs for this reason.
Joint products are two or more products that are generated within a single production process. They can’t be produced separately and will incur undifferentiated joint costs. … Joint products can’t be separated until a specific ‘split-off point’ or ‘separation point’.
For settlement of insurance claims involving separable products at or beyond split-off. A typical process industry consists of a mother plant which takes in the raw material along with some chemicals and utilities and processes it to produce two or more joint/co-products (Co-prod B, Co-prod C). The co-products are further processed in respective processing plants to produce finished goods . The mother plant also produces some incidental/by-products (By-prod D, By-prod E) along with the coproducts. These by-products can be further processed in their respective processing units to produce finished goods, further by-products (By-prod D2) and Recyclable materials.
By-products are produced from the scrap or the discarded material of the main product. Using arbitrariness results in inaccurate allocation of joint cost. Till the point of separation, joint products are indivisible.
The incremental revenue-allocation method, with bus ticket ranked as the primary product. The incremental revenue-allocation method ranks individual components according to the criteria determined by the management. The first-ranked product is the primary product with the most sales in the bundle. The first incremental product will be ranked as second-ranked product and followed by the second-incremental product. The stand-alone cost-allocation method allocates the common cost according to the weights of the cost by considering each user as a separate entity. The advantage of this method is that it emphasises the fairness or equity criterion.
For example Furniture manufacturing company manufactures tables, chairs, cots, interior decorating furniture etc. Automobile manufacturing company manufactures heavy commercial vehicles, light commercial vehicles, buses, utility vehicles etc. Cost of a manufacturing process with several different outputs. For an organization to gain optimum value from standard costing, all employees involved must understand the motivation for such costing and also understand the assessment that will be made. Imposing standard costs without communicating in an honest, candid manner will undermine much of the perceived value of such costing.
They include common cost for variable outputs as well as joint cost for fixed outputs. If the value of scrap is material, and the time between storing it and selling it can be long and unpredictable, then it is necessary to keep a separate inventory account. Scrap inventory should be measured based on conservative estimate of its net realisable value.
By-Products are outputs from a joint production process that are relatively minor in quantity and/or value when compared to the main product.
This method helps in accurate apportionment of joint costs over various joint products. In a manufacturing process, a raw material may be converted into finished product. During the process of conversion, there is an emergence of waste, scrap, joint products and by products.
Companies monitor the extent to which standards appear to be reasonable by assessing the end-of-year balances in variance accounts. It requires all levels of management to plan ahead and formalize goals on a repetitive basis. Then they gather the experts needed to ascertain if they will be able to produce the vehicle for this targeted cost. Also distortions in one market spill over into another, i.e. a meat cartel impacts the wool market, and vice versa. In other words, non-rivalry is what generates the vertical summation – non-excludability is what causes the particular type of market failure seen with externalities and public goods. I thought only macroeconomists thought in terms of a single produced good. Smart Enterprise is willing to make these frequent deliveries, but the purchase price of the camera has increased from RM3,000 to RM3,010 per unit.
Some companies add their markup to their variable costs, rather than using the full cost needed for cost-plus pricing. Variable cost pricing is especially useful in special instances such as in pricing special orders or when the company has excess capacity. Must be accounted for separately as the goods are produced and no goods would be produced on a speculative basis.
Department that uses the functions of service departments. Department that provides services to other subunits in the organization. It results in greater management awareness of the company’s overall operations including the impact of external factors such as economic trends. Nor can we prove anything by watching where outputs end up.
For example, more-profitable divisions have a greater ability to absorb corporate headquarters’ costs. Managers and management accountants must decide how to allocate costs by using the four criteria for cost-allocation decisions. The number of indirect-cost pools and the cost-allocation base are affected by these criteria. Apply overhead by multiplying the overhead allocation rate by the number of direct labor hours needed to make each product. Compute the overhead allocation rate by dividing total overhead by the number of direct labor hours. For example in Sugar industry bagasse emerge in crushing process and molasses emerge in refining process.
Common costs are those costs which are incurred for more than one product, job, territory or any other specific costing object. Common costs are not easily identifiable with individual products and, therefore, are generally apportioned. The National Association of Accountants defines the term “common cost as the cost of services employed in the creation of two or more output which is not allocatable to those outputs on a clearly justified basis”. The important distinguishing characteristic of a common cost is that there is no clearly definable association between the incurrence of the cost and the cost objectives that benefit from use of the facilities. Oregon Lumber will decide whether or not to process Grade B lumber further regardless of how joint costs are allocated to Grade A and Grade B lumber. In a sense, joint costs are sunk costs with respect to this decision, and will not influence future processing decisions.
Budgeted amounts are used to calculate the allocation rates. To provide information for economic decisions including long-run decisions such as product pricing decision and short-run decisions such as make or buy decisions. This is because , This gate can function as any of the basic logic gates by just making some changes at its input side. Mostly, we prefer NAND gates over NOR gates for designing the other basic logic gates. This also distorts the correctness of the decision taken by the management. When various factors of production expended per product cannot be ascertained, weights are given arbitrarily.
In contemporary companies, it is not uncommon for a company with factories or stores to monitor on a daily basis their resource usage, thereby allowing modifications, if judged necessary, to be introduced promptly. Computer-integrated production methods, for example, allow for maintaining both the actual cost/usage and the standard cost/usage figures in the records maintained.
Joint costs are those costs which are common to the processing of joint products or by-products upto the point of separation. In other words, joint costs are allocable to two or more products produced from same raw material or the same process. The number of products can differ from the number of output when the joint production process of two or more products become separately unidentifiable. Therefore a company can have multiple outputs with only one product having a positive sales value. One of the simplest methods to apportion joint cost is the average unit cost method.
Finding a productive use or market for the co-products can reduce both waste and costs and increase revenues. A common cost is a cost that is shared by more than one user which is lower than the total costs to be incurred separately by different users. A common cost should be allocated to each user in a reasonable way. There are two methods of allocating common cost between two users i.e., the stand-alone method and the incremental method. In making business decisions, overhead and internal support costs such as marketing, advertising, and other internal services are allocated to various producing departments or projects. Although the allocation of these costs does not affect the firm’s profit as a whole, if the allocation is not properly done, the performance of some departments or projects may be affected.
Calculate the cost per unit and total cost of each joint product. To determine the unit cost of joint products and by-products. If milk is put to the manufacturing process, it yields Butter and Butter-milk (By-product). In the case of Sugar Industry, sugar cane is the raw-material and the outputs are, Sugar , Molasses and Bagasse (By-products). These By-products have either the use value or the sale value or both. A By-product may be used as raw-material in the production of another product. The same By-product or another By-product may be having a sale value.
Purchasing costs are the costs of products purchased from suppliers, including inward shipping costs. Different scorecards are applicable for different strategies.
FNB News – 110 food processing projects including one Mega Food Park completed FNB News.
Posted: Mon, 03 Jan 2022 10:43:37 GMT [source]
In accounting, a joint cost is a cost incurred in a joint process. 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. It is a process in which seeking to create one type of output product automatically also creates other types of output product.