Cost Management: Measuring, Monitoring, and Motivating Performance, 2nd Edition

CHAPTER 9

Joint Product and By-Product Costing

In Brief

Some products are produced jointly with other products. For example, when crude oil is processed, gasoline, diesel, and heating oil are produced. For external reports such as financial statements and tax returns, the common costs incurred to produce joint products are allocated to the resulting products. Accountants choose among several methods to allocate joint costs.

Managers and accountants also make decisions about when to sell joint products. Some goods and services are sold when joint production ends. Other goods and services are processed further and then sold. For example, managers of a food manufacturer must decide how much of the wheat they purchase to sell as flour and how much to process further into pasta or other food products. They must also identify relevant costs when making this type of decision.

This Chapter Addresses the Following Questions:

• Q1 What is a joint process, and what is the difference between a by-product and a main product?
• Q2 How are joint costs allocated?
• Q3 What factors are considered in choosing a joint cost allocation method?
• Q4 What information is relevant for deciding whether to process a joint product beyond the split-off point?
• Q5 What methods are used to account for the sale of by-products?
• Q6 How does a sales mix affect joint cost allocation?
• Q7 How do joint cost allocations affect ...