Question

Briefly explain with examples the varied products or outputs in a joint cost process?

Answer 1

Joint cost is a cost that is jointly incurred in the process of producing different finished products prior to separation point.

Example,

When you use dried coconuts to produce coconut oil, you get Oil cake as the by-product. So eventually you get 2 products, namely Coconut oil and Oil cake.

Allocation:

Allocate joint costs to the primary output products of the joint process, not the incidental byproducts or scrap. Allocate them using a physical measure or a monetary measure.

The physical measure allocates joint costs to primary products based on a physical characteristic, such as units produced, or pounds or tons produced, barrels produced, or some other physical measure that is appropriate for the volume of output of the primary products. To use this method, simply divide the total production cost by the appropriate measure of output volume to yield the cost per unit of output.

One type of monetary measure of joint cost allocation is the sales value method. Using the sales value method, separate and differentiate the primary products according to sales value. Then divide them into proportions of sales value that add up to 100%. Then multiply the percentage proportions by the total production cost to yield the allocated cost per primary product type.