Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
23 Cards in this Set
- Front
- Back
|
Joint Costs |
costs of a single production process that yields multiple products simultaneously |
|
|
Splitoff Point |
the place, in a joint production process, where two or more products become separately identifiable |
|
|
Separable Costs |
all costs incurred beyond the splitoff point that are assignable to one or more individual products |
|
|
Categories of Joint Process Outputs |
- outputs with a positive sales value - outputs with a zero sales value |
|
|
Product |
any output with a positive sales value, or an output used internally that enables a firm to avoid incurring costs |
|
|
Joint Products |
outputs of a joint production process that yields two or more products with a high sales value compared to the sales values of any other outputs (but are not separately identifiable as individual products until the split-off point) |
|
|
Main Product |
output of a joint production that yields one product with a high sales value compared to the values of the other outputs |
|
|
Byproduct |
outputs of a joint production process that have a low sales value compared to the sales values of other outputs |
|
|
Scrap |
has a minimal to zero sales value |
|
|
Toxic Waste |
- has negative revenue when the costs of reclamation and remediation are considered - costs of recovering or disposing of toxic emissions are life-cycle costs that should be added to joint production costs prior to allocating this cost pool to main, joint, or byproducts |
|
|
Reasoning for allocating joint costs |
- required for GAAP and taxation purposes - computation of inventoriable costs and cost of goods sold for financial accounting and tax reporting - internal analysis of divisional profitability - cost-based contracting - insurance sttlements - required for rate and price regulations - litigation |
|
|
Market-based allocate using market-derived data |
1. sales value at splitoff 2. net realizable value (NRV) 3. constant gross-margin percentage NRV |
|
|
Physical Measures |
allocate using tangible attributes of the products, such as pounds, gallons, barrels, and so on |
|
|
Physical Measure Method |
- allocates joint costs on the basis of their relative proportions at the splitoff point (using a common physical measure such as weight or volume - less desirable as physical allocation measure has no relationship to revenue-producing power of the individual products - can be problematic if no common physical measure is available |
|
|
Sales Value at Splitoff Method |
- using the sales value of the entire production in the accounting period to calculate allocation percentage - costs are allocated to products in proportion to their revenue-generating power - consistent with the benefits-received criterion of cost allocation - ignores inventories |
|
|
Net Realizable Value Method |
- allocating joint costs on the basis of relative estimated net realizable value (NRV) of total production of the joint products - expected sales value less expected separable costs of production and marketing of total production NRV = Final Sales Value - Separable Costs - an alternative when selling prices of one or more products at splitoff do not exist |
|
|
Constant Gross Margin % of NRV Method |
- allocates joint costs to joint products in a way that the overall gross-margin percentage is identical for the individual products - joint costs are calculated as a residual amount |
|
|
Method Selection |
- if selling price at splitoff is available, use the sales value at splitoff method - if selling price is not available, use the NRV method - if simplicity is the primary consideration, physical-measures method or the constant gross-margin method could be used - despite this, some firms choose not to allocate joint costs at all |
|
|
Sell-or-Process Further Decisions |
- in sell-or-process further decisions, joint costs are irrelevant. Joint products have been produced, and a prospective decision must be made: to sell immediately or process further and sell later - joint costs are sunk costs - don't assume all separable costs in joint-cost allocations are always incremental costs - some separable costs need to be evaluated for relevance individually |
|
|
Accounting Challenges |
- Market-based joint cost allocation methods result in positive operating incomes for all products - allocating joint costs using physical measures can result in one or more joint products having negative operating income -implication for performance evaluation: managers may be reluctant to be responsible for products with negative margins |
|
|
By-Product Methods |
1. Production Method 2. Sales Method |
|
|
Production Method |
- recognizes byproduct inventory as it is produced, and sales and costs ar the time of sale - recorded as inventory at their selling price, or at selling price less normal profit margin |
|
|
Sales Method |
- delays recognition of byproducts until they are sold; byproduct costs are not tracked separately - byproduct inventory is not recognized - Revenue is recorded at the time of sale |
