Joint Product Cost Allocation

Concept:

In some industries, a number of products are produced from a single raw material input. Joint products products resulting from a process with a common input.
Split-off point the stage of processing where joint products are separated. Joint product cost costs of processing joint products prior to the split-off point.

Key terms:

Joint Product Cost Allocation

Product A

Joint Product Costs

Product B

Product C

Joint Product Cost Allocation

Consider the following example of an oil refinery. We will assume only two products, gasoline and oil.

Joint Product Cost Allocation

Joint Product Costs
Joint Production Process

Oil

Separate Processing

Final Sale

Joint Input

Separate Processing Costs

Gasoline

Separate Processing

Final Sale

Split-Off Point

Separate Processing Costs

Physical-Units Method

Allocation based on a physical measure of the joint products at the split-off point. Allocation based on the relative values of the products at the split-off point. Allocation based on final sales values less separable processing costs.

Relative-SalesValue Method

Net-RealizableValue Method Constant gross Margin %

Allocation to equate the gross margin percent across all products.

Allocating Joint Costs

Lets look at an example illustrating the joint cost allocation methods.

Physical-Units Method
Joint conversion cost = $225,000

Oil

240,000 gallons

Joint material cost = $275,000

Joint Production Process

Gasoline

360,000 gallons

Split-Off Point

Physical-Units Method
Product Oil Output quantities in gallons Proportionate share: 240,000 600,000 360,000 600,000 Allocated joint costs: $500,000 40% $500,000 60% 240,000 40% 60% $ 200,000 $ 300,000 Gasoline 360,000 Total 600,000

$225,000 joint conversion cost plus $275,000 joint material cost

Physical-Units Method

Assume that the company will incur after-split costs of $200,000 for oil and $500,000 for gas. The oil will be sold for $500,000 and the gas will be sold for $1,200,000.
Based on this information, prepare product line income statements using the physical units method of joint cost allocation.

Physical-Units Method Prepare product line income statements using this method of joint cost allocation. Include the gross margin percentage for each product, as well as for the entire batch of joint production.
Revenues After-split costs Net realizable value Joint costs Gross margin Gross margin percent OIL GAS TOTAL (240,000 gals.) (360,000 gals.) $500,000 $1,200,000 $1,700,000 $200,000 $500,000 $ 700,000 $300,000 $700,000 $1,000,000 $500,000 $500,000 29.4%

Physical-Units Method
Prepare product line income statements using this method of joint cost allocation. Include the gross margin percentage for each product, as well as for the entire batch of joint production.
Revenues After-split costs Net realizable value Joint costs Gross margin Gross margin percent OIL GAS TOTAL (240,000 gals.) (360,000 gals.) $500,000 $1,200,000 $1,700,000 $200,000 $500,000 $ 700,000 $300,000 $700,000 $1,000,000 $200,000 $300,000 $500,000 $100,000 $400,000 $500,000 20% 33 1/3 % 29.4%

Relative-SalesValue Method
Joint conversion cost = $225,000

Oil

$200,000 sales value at split-off point

Joint material cost = $275,000

Joint Production Process

Gasoline

$600,000 sales value at split-off point

Split-Off Point

Relative-SalesValue Method
Product Oil Sales value at split-off point Proportionate share: $200,000 $800,000 $600,000 $800,000 Allocated joint costs: $500,000 25% $500,000 75% Gasoline Total $ 200,000 $ 600,000 $ 800,000 25% 75% $ 125,000 $ 375,000

$225,000 joint conversion cost plus $275,000 joint material cost

Relative-SalesValue Method
Prepare product line income statements using this method of joint cost allocation. Include the gross margin percentage for each product, as well as for the entire batch of joint production.
Revenues After-split costs Net realizable value Joint costs Gross margin Gross margin percent OIL GAS TOTAL (240,000 gals.) (360,000 gals.) $500,000 $1,200,000 $1,700,000 $200,000 $500,000 $ 700,000 $300,000 $700,000 $1,000,000 $125,000 $375,000 $500,000 $175,000 $325,000 $500,000 35% 27 % 29.4%

Net-RealizableValue Method If products require further processing beyond the split-off point before they are marketable, we may estimate the net realizable value (NRV) at the split-off point.

Estimated NRV

Final Sales Value

Added Processing Costs

Net-RealizableValue Method
Joint conversion cost = $225,000
Separate Processing Separate Processing Costs $200,000 Separate Processing Sales Value $1,200,000 Sales Value $500,000

Oil

Joint material cost = $275,000

Joint Production Process

Gasoline

Separate Processing Costs $500,000

Net-RealizableValue Method
Product Oil Sales value Less additional processing costs Estimated NRV at split-off point Proportionate share: $300,000 $1,000,000 $700,000 $1,000,000 Allocated joint costs: $500,000 30% $500,000 70% Gasoline Total $ 500,000 $ 1,200,000 $ 1,700,000 200,000 500,000 700,000 $ 300,000 $ 700,000 $ 1,000,000 30% 70% $ 150,000 $ 350,000

Net-RealizableValue Method Prepare product line income statements using this method of joint cost allocation. Include the gross margin percentage for each product, as well as for the entire batch of joint production.
OIL GAS TOTAL (240,000 gals.) (360,000 gals.) $500,000 $1,200,000 $1,700,000 $200,000 $500,000 $ 700,000 $300,000 $700,000 $1,000,000 $150,000 $350,000 $500,000 $150,000 $350,000 $500,000 30% 29 % 29.4%

Revenues After-split costs Net realizable value Joint costs Gross margin Gross margin percent

Constant gross Margin %

Prepare product line income statements using a method of joint cost allocation that equates the gross margin percentage across all main products.

Constant gross margin %

Prepare product line income statements using this method of joint cost allocation. Include the gross margin percentage for each product, as well as for the entire batch of joint production.
Revenues After-split costs Net realizable value Joint costs Gross margin Gross margin percent OIL GAS TOTAL (240,000 gals.) (360,000 gals.) $500,000 $1,200,000 $1,700,000 $200,000 $500,000 $ 700,000 $300,000 $700,000 $1,000,000 ? ? $500,000 $147,000 $353,000 $500,000 29.4% 29.4 % 29.4%

Constant gross margin %

Prepare product line income statements using this method of joint cost allocation. Include the gross margin percentage for each product, as well as for the entire batch of joint production.
Revenues After-split costs Net realizable value Joint costs Gross margin Gross margin percent OIL GAS TOTAL (240,000 gals.) (360,000 gals.) $500,000 $1,200,000 $1,700,000 $200,000 $500,000 $ 700,000 $300,000 $700,000 $1,000,000 153,000 347,000 $500,000 $147,000 $353,000 $500,000 29.4% 29.4 % 29.4%

We have developed four separate allocations of the joint costs. Which of the joint cost allocations developed above is most useful to management? Explain.

By-Products
Joint Costs
Major Product

Joint Input

Joint Production Process

Major Product

By-products

Relatively low value or quantity when compared to major products

Split-Off Point

Joint Products and By-Products

Main Products Joint Products

By-Products

High Sales Value

Low

Accounting for By-products

Method A: The production method recognizes byproducts at the time their production is completed. The value of the byproducts usually is credited to costs of producing the main products. Method B: The sale method delays recognition of byproducts until the time of their sale.The proceeds usually are credited to sales.

Accounting for Byproducts

Quary Company produces granite countertops and generates by-products during production. In a recent period the company purchased granite for a total cost of $1,000,000. The company produced countertops with a sales value of $1,200,000 and by-products with a sales value of $300,000. Eighty percent of the countertops and all of the by-products were sold during the period. The Firm had no beginning inventories. Required: Provide journal entries to recognize the following events, using (a) the sales method and (b) the production method of accounting for by-products. 1. Purchase of granite. 2. Production of by-products. 3. Sale of 80% of the main products. 4. Sale of all of the by-products. 5. Recording of cost of goods sold. For each of the two methods of accounting for by-products, determine the following: (1) Total sales; (2) Cost of goods sold; (3) Gross margin; (4) Gross margin percent; and (5) Valuation of the ending inventory

Extension of Joint Cost Discussion: Allocation of Joint Costs to Several Different Time Periods

$1,000,000
Benefit, year 1

$2,487,000
Joint cost

$1,000,000
Benefit, year 2

$1,000,000
Benefit, year 3

A. Assume that on January 1st of 2011 a firm invests in a note receivable that promises to repay the holder $1,000,000 per year at the end of each of the next three years.The current market rate of interest on similar debt is 10 percent, and the firm pays $2,487,000 for the note receivable. You have obtained the following information regarding present value factors for an ordinary annuity: Periods 1. 2. 3. Present Value Factor (rounded) .909 1.736 2.487

Based on the above information, determine the following: (a) Total interest income to be recognized over the three-year time span. (b) Amount of interest to be recognized in each of the three periods. (c) Portion of each annual payment that represents a return of the firms investment.

A. Assume that on January 1st of 2011 a firm invests in a machine that promises to earn cash flows of $1,000,000 per year at the end of each of the next three years.The firms cost of capital is 10 percent, and the firm pays $2,487,000 for the machine. You have obtained the following information regarding present value factors for an ordinary annuity: Periods 1. 2. 3. Present Value Factor (rounded) .909 1.736 2.487

Based on the above information, determine the following: (a) Total income to be recognized over the three-year time span. (b) Amount of income to be recognized in each of the three periods. (c) Portion of each annual payment that represents a return of the firms investment (i.e., depreciation)..

Handout 9 (a) Joint Costs, Alternative Methods

Exurbia Company purchases pine bark in ten-ton lots at a cost of $ 6.6 million per lot, and refines the bark into three main products. Relevant cost and revenue information is provided below, assuming that all units produced are sold in the current period, i.e. the firm has no beginning or ending inventories. Products: Number of tons Sales value at split point After-split additional processing costs Sales price after additional processing Joint cost Gross Margin Gross Margin % Alpha 3 $3,000,000 $ 480,000 $ 4,000,000 ? ? ? Beta 2 $2,000,000 $ 480,000 $ 4,000,000 ? ? ? Chi 5 $ 1,000,000 $ 240,000 Total 10 $6,000,000 $1,200,000

$ 2,000,000 $10,000,000 ? ? ? $ 6,600,000 $ 2,200,000 22%

Products: Number of tons Sales value at split point After-split additional processing costs Sales price after additional processing Joint cost Gross Margin Gross Margin %

Alpha 3 $3,000,000 $ 480,000 $ 4,000,000 ? ? ?

Beta 2 $2,000,000 $ 480,000 $ 4,000,000 ? ? ?

Chi 5 $ 1,000,000 $ 240,000

Total 10 $6,000,000 $1,200,000

$ 2,000,000 $10,000,000 ? ? ? $ 6,600,000 $ 2,200,000 22%

Required: Determine the amount of joint cost that would be allocated to Product Alpha using each of the following allocation methods: (a) Physical output (3/10) x $ 6,600,000) $_1,980,000__to Alpha

Products: Number of tons Sales value at split point After-split additional processing costs Sales price after additional processing Joint cost Gross Margin Gross Margin %

Alpha 3 $3,000,000 $ 480,000 $ 4,000,000 ? ? ?

Beta 2 $2,000,000 $ 480,000 $ 4,000,000 ? ? ?

Chi 5 $ 1,000,000 $ 240,000

Total 10 $6,000,000 $1,200,000

$ 2,000,000 $10,000,000 ? ? ? $ 6,600,000 $ 2,200,000 22%

Required: Determine the amount of joint cost that would be allocated to Product Alpha using each of the following allocation methods: (a) Physical output (3/10) x $ 6,600,000) $_1,980,000__to Alpha

Products: Sales After-split costs Net realizable value (NRV) Joint cost (based on tons) Gross Margin Gross Margin %

Alpha $ 4,000,000 $ 480,000 $ 3,520,000 $1,980,000 $1,540,000 38.5%

Beta $ 4,000,000 $ 480,000 $ 3,520,000 $1,320,000 $2,200,000 55.0%

Chi Total $ 2,000,000 $10,000,000 $ 240,000 $ 1,760,000 $1,200,000 $ 8,800,000

$3,300,000 $ 6,600,000 ($1,540,000) $ 2,200,000 (77%) 22%

Products: Number of tons Sales value at split point After-split additional processing costs Sales price after additional processing Joint cost Gross Margin Gross Margin %

Alpha 3 $3,000,000 $ 480,000 $ 4,000,000 ? ? ?

Beta 2 $2,000,000 $ 480,000 $ 4,000,000 ? ? ?

Chi 5 $ 1,000,000 $ 240,000

Total 10 $6,000,000 $1,200,000

$ 2,000,000 $10,000,000 ? ? ? $ 6,600,000 $ 2,200,000 22%

(b) Sales value at split-off (3/6) x $ 6,600,000)

$_3,300,000__to Alpha

Products: Number of tons Sales value at split point After-split additional processing costs Sales price after additional processing Joint cost Gross Margin Gross Margin %

Alpha 3 $3,000,000 $ 480,000 $ 4,000,000 ? ? ?

Beta 2 $2,000,000 $ 480,000 $ 4,000,000 ? ? ?

Chi 5 $ 1,000,000 $ 240,000

Total 10 $6,000,000 $1,200,000

$ 2,000,000 $10,000,000 ? ? ? $ 6,600,000 $ 2,200,000 22%

(b) Sales value at split-off (3/6) x $ 6,600,000)

$_3,300,000__to Alpha

Products: Sales After-split costs Net realizable value (NRV) Joint cost (based on split value) Gross Margin Gross Margin %

Alpha $ 4,000,000 $ 480,000 $ 3,520,000 $3,300,000 $220,000 5.5%

Beta $ 4,000,000 $ 480,000 $ 3,520,000 $2,200,000 $1,,320,000 33.0%

Chi $ 2,000,000 $ 240,000 $ 1,760,000 $1,100,000 $660,000 33.0%

Total $10,000,000 $1,200,000 $ 8,800,000 $ 6,600,000 $ 2,200,000 22%

Products: Number of tons Sales value at split point After-split additional processing costs Sales price after additional processing Joint cost Gross Margin Gross Margin %

Alpha 3 $3,000,000 $ 480,000 $ 4,000,000 ? ? ?

Beta 2 $2,000,000 $ 480,000 $ 4,000,000 ? ? ?

Chi 5 $ 1,000,000 $ 240,000

Total 10 $6,000,000 $1,200,000

$ 2,000,000 $10,000,000 ? ? ? $ 6,600,000 $ 2,200,000 22%

(c) Net realizable value (3,520/8,800) x $ 6,600,000) Products: Sales After-split costs Net realizable value (NRV) Joint cost (based on NRV) Gross Margin Gross Margin % Alpha $ 4,000,000 $ 480,000 $ 3,520,000 $2,640,000 $880,000 22.0%

$_2,640,000__to Alpha Chi Total $ 2,000,000 $10,000,000 $ 240,000 $ 1,760,000 $1,320,000 $440,000 22.0% $1,200,000 $ 8,800,000 $ 6,600,000 $ 2,200,000 22%

Beta $ 4,000,000 $ 480,000 $ 3,520,000 $2,640,000 $880,000 22.0%

(b) Constant gross margin percentage NRV 22% x $ 4,000,000 or 3,520,000 880,000 $_2,640,000 _to Alpha Note: We first compute the dollar amount of the gross margin that is needed in order for each of the products to show a gross margin of 22%. For each product, this required gross margin is subtracted from the net realizable value to plug the joint cost allocation. The above example is a special case because the same joint cost allocation was obtained for the NRV-based and the gross margin-based allocations.

Products: Sales After-split costs Net realizable value (NRV) Joint cost (based on NRV) Gross Margin Gross Margin %

Alpha $ 4,000,000 $ 480,000 $ 3,520,000 $2,640,000 $880,000 22.0%

Beta $ 4,000,000 $ 480,000 $ 3,520,000 $2,640,000 $880,000 22.0%

Chi Total $ 2,000,000 $10,000,000 $ 240,000 $ 1,760,000 $1,320,000 $440,000 22.0% $1,200,000 $ 8,800,000 $ 6,600,000 $ 2,200,000 22%

Assume instead that the company had no beginning inventory, and that the ending inventory of finished goods consists of one ton of Beta. There are no ending raw materials or work in process inventories. The joint costs have been allocated based on physical output (number of tons).
Products: Sales After-split costs Net realizable value (NRV) Joint cost (based on tons) Gross Margin Gross Margin % Alpha $ 4,000,000 $ 480,000 $ 3,520,000 $1,980,000 $1,540,000 38.5% Beta $ 4,000,000 $ 480,000 $ 3,520,000 $1,320,000 $2,200,000 55.0% Chi Total $ 2,000,000 $10,000,000 $ 240,000 $ 1,760,000 $1,200,000 $ 8,800,000

$3,300,000 $ 6,600,000 ($1,540,000) $ 2,200,000 (77%) 22%

Assume instead that the company had no beginning inventory, and that the ending inventory of finished goods consists of one ton of Beta. There are no ending raw materials or work in process inventories. The joint costs have been allocated based on physical output (number of tons).
Products: Sales After-split costs Net realizable value (NRV) Joint cost (based on tons) Gross Margin Gross Margin % (1) Cost assigned to the ending inventory Alpha $ 4,000,000 $ 480,000 $ 3,520,000 $1,980,000 $1,540,000 38.5% Beta $ 4,000,000 $ 480,000 $ 3,520,000 $1,320,000 $2,200,000 55.0% Chi Total $ 2,000,000 $10,000,000 $ 240,000 $ 1,760,000 $1,200,000 $ 8,800,000

$3,300,000 $ 6,600,000 ($1,540,000) $ 2,200,000 (77%) 22%

Assume instead that the company had no beginning inventory, and that the ending inventory of finished goods consists of one ton of Beta. There are no ending raw materials or work in process inventories. The joint costs have been allocated based on physical output (number of tons).
Products: Sales After-split costs Net realizable value (NRV) Joint cost (based on tons) Gross Margin Gross Margin % (1) Cost assigned to the ending inventory Alpha $ 4,000,000 $ 480,000 $ 3,520,000 $1,980,000 $1,540,000 38.5% Beta $ 4,000,000 $ 480,000 $ 3,520,000 $1,320,000 $2,200,000 55.0% Chi Total $ 2,000,000 $10,000,000 $ 240,000 $ 1,760,000 $1,200,000 $ 8,800,000

$3,300,000 $ 6,600,000 ($1,540,000) $ 2,200,000 (77%) 22%

($ 480,000 + 1,320,000) = $ 900,000 One half of the Beta is in the finished goods inventory, and is valued at one-half of the total cost (joint and after-split costs) assigned to Beta. (2) Total cost of goods manufactured (completed)

Assume instead that the company had no beginning inventory, and that the ending inventory of finished goods consists of one ton of Beta. There are no ending raw materials or work in process inventories. The joint costs have been allocated based on physical output (number of tons).
Products: Sales After-split costs Net realizable value (NRV) Joint cost (based on tons) Gross Margin Gross Margin % (1) Cost assigned to the ending inventory Alpha $ 4,000,000 $ 480,000 $ 3,520,000 $1,980,000 $1,540,000 38.5% Beta $ 4,000,000 $ 480,000 $ 3,520,000 $1,320,000 $2,200,000 55.0% Chi Total $ 2,000,000 $10,000,000 $ 240,000 $ 1,760,000 $1,200,000 $ 8,800,000

$3,300,000 $ 6,600,000 ($1,540,000) $ 2,200,000 (77%) 22%

($ 480,000 + 1,320,000) = $ 900,000 One half of the Beta is in the finished goods inventory, and is valued at one-half of the total cost (joint and after-split costs) assigned to Beta. (2) Total cost of goods manufactured (completed) $ 6,600,000 + $ 1,200,000 = $ 7,800,000

All production has been completed, so the goods completed are measured as the sum of the total joint cost and the total after-split cost. (3) Total cost of goods sold

Assume instead that the company had no beginning inventory, and that the ending inventory of finished goods consists of one ton of Beta. There are no ending raw materials or work in process inventories. The joint costs have been allocated based on physical output (number of tons).
Products: Sales After-split costs Net realizable value (NRV) Joint cost (based on tons) Gross Margin Gross Margin % (1) Cost assigned to the ending inventory Alpha $ 4,000,000 $ 480,000 $ 3,520,000 $1,980,000 $1,540,000 38.5% Beta $ 4,000,000 $ 480,000 $ 3,520,000 $1,320,000 $2,200,000 55.0% Chi Total $ 2,000,000 $10,000,000 $ 240,000 $ 1,760,000 $1,200,000 $ 8,800,000

$3,300,000 $ 6,600,000 ($1,540,000) $ 2,200,000 (77%) 22%

($ 480,000 + 1,320,000) = $ 900,000 One half of the Beta is in the finished goods inventory, and is valued at one-half of the total cost (joint and after-split costs) assigned to Beta. (2) Total cost of goods manufactured (completed) $ 6,600,000 + $ 1,200,000 = $ 7,800,000

All production has been completed, so the goods completed are measured as the sum of the total joint cost and the total after-split cost. (3) Total cost of goods sold $ 7,800,000 - $ 900,000 = $ 6,900,000

Total (joint plus after-split) costs, minus the ending inventory, equals cost of goods sold. (4) Total Gross margin

Assume instead that the company had no beginning inventory, and that the ending inventory of finished goods consists of one ton of Beta. There are no ending raw materials or work in process inventories. The joint costs have been allocated based on physical output (number of tons).
Products: Sales After-split costs Net realizable value (NRV) Joint cost (based on tons) Gross Margin Gross Margin % (1) Cost assigned to the ending inventory Alpha $ 4,000,000 $ 480,000 $ 3,520,000 $1,980,000 $1,540,000 38.5% Beta $ 4,000,000 $ 480,000 $ 3,520,000 $1,320,000 $2,200,000 55.0% Chi Total $ 2,000,000 $10,000,000 $ 240,000 $ 1,760,000 $1,200,000 $ 8,800,000

$3,300,000 $ 6,600,000 ($1,540,000) $ 2,200,000 (77%) 22%

($ 480,000 + 1,320,000) = $ 900,000 One half of the Beta is in the finished goods inventory, and is valued at one-half of the total cost (joint and after-split costs) assigned to Beta. (2) Total cost of goods manufactured (completed) $ 6,600,000 + $ 1,200,000 = $ 7,800,000

All production has been completed, so the goods completed are measured as the sum of the total joint cost and the total after-split cost. (3) Total cost of goods sold $ 7,800,000 - $ 900,000 = $ 6,900,000

Total (joint plus after-split) costs, minus the ending inventory, equals cost of goods sold. (4) Total Gross margin ($ 10,000,000 2,000,000) - $ 6,900,000 = $ 1,100,000

Sales minus cost of goods sold equals gross margin. Note that the units of BETA in the ending inventory have a total sales value of $2 million, so the total sales are $8 million. When the Beta in the ending inventory is subsequently sold, the gross margin for that sale will be $1,100,000 ($2,000,000 900,000).

Handout 9 (b): Joint Costs, By-Products and Inventories

Wilburs Mill buys spruce logs directly from local logging camps. The logs are milled into dimension lumber and several by-products including bark, wood chips, and sawdust. The average cost per log is $ 700, and additional costs of about $ 500 per log are incurred before and during the milling process, including costs of transportation, handling, trimming, and chemical cleansing. After milling, the rough- cut dimension lumber from each log has a market value of $ 1.000, and the by-products have a total market value of $ 500. In the most recent period, Wilburs Mill purchased and milled 1,000 spruce logs. One quarter of the milled dimension lumber and one-half of the milling byproducts remain in inventory at the end of the period. The firm had no beginning inventories, and has no ending inventories of raw materials or work in process.

Required: Determine the periods gross margin, gross margin percentage, and the total valuation of the ending inventories (dimension lumber and by-products) under each of the following alternative assumptions: Also write out the journal entries related to the production and sale of the firms main products and by-products.

Required: Determine the periods gross margin, gross margin percentage, and the total valuation of the ending inventories (dimension lumber and by-products) under each of the following alternative assumptions: Also write out the journal entries related to the production and sale of the firms main products and by-products.

1. Assume that the firm does not assign any inventory value to the by-products at the time of production. Instead, revenues from the sale of the by-products is recorded as these items are sold, and the sales amount is credited to miscellaneous revenues (and included in total sales reported in the income statement).

Required: Determine the periods gross margin, gross margin percentage, and the total valuation of the ending inventories (dimension lumber and by-products) under each of the following alternative assumptions: Also write out the journal entries related to the production and sale of the firms main products and by-products.

1. Assume that the firm does not assign any inventory value to the by-products at the time of production. Instead, revenues from the sale of the by-products is recorded as these items are sold, and the sales amount is credited to miscellaneous revenues (and included in total sales reported in the income statement).

2. Assume that the firm values the by-products as they are produced, at their estimated sales value. The sales value of the by-products is also credited to the manufacturing cost of the main products, as a reduction of the joint costs incurred.

Joint costs with by-products and inventories: Solution

Event 1.Purchase of logs 2.Additional pre-split costs 3.Recognition of by-product 4.Sale of byproduct 5.Sales of main product 6.Cost of sales (75% main) 7. Sales: Main By-product Total Cost of sales Gross margin GM % Ending inventory. No value assigned to byproduct By-product inventoried

Joint costs with by-products and inventories: Solution

No value assigned to byproduct $700,000 1.Purchase of Dr. Inventory Cr. A/P $700,000 logs 2.Additional pre-split costs 3.Recognition of by-product 4.Sale of byproduct 5.Sales of main product 6.Cost of sales (75% main) 7. Sales: Main By-product Total Cost of sales Gross margin GM % Ending inventory. Event By-product inventoried

Same

Joint costs with by-products and inventories: Solution

No value assigned to byproduct $700,000 1.Purchase of Dr. Inventory Cr. A/P $700,000 logs 2.Additional pre-split costs 3.Recognition of by-product 4.Sale of byproduct 5.Sales of main product 6.Cost of sales (75% main) 7. Sales: Main By-product Total Cost of sales Gross margin GM % Ending inventory. Dr. Inventory Cr. Sundry $500,000 $500,000 Event By-product inventoried

Same Same

Joint costs with by-products and inventories: Solution

No value assigned to byproduct $700,000 1.Purchase of Dr. Inventory Cr. A/P $700,000 logs 2.Additional pre-split costs 3.Recognition of by-product 4.Sale of byproduct 5.Sales of main product 6.Cost of sales (75% main) 7. Sales: Main By-product Total Cost of sales Gross margin GM % Ending inventory. Dr. Inventory Cr. Sundry $500,000 $500,000 Event By-product inventoried

Same Same
Dr. Inventory-BPr Cr. Inventory-Main $500,000 $500,000

N/A

Joint costs with by-products and inventories: Solution

No value assigned to byproduct $700,000 1.Purchase of Dr. Inventory Cr. A/P $700,000 logs 2.Additional pre-split costs 3.Recognition of by-product 4.Sale of byproduct 5.Sales of main product 6.Cost of sales (75% main) 7. Sales: Main By-product Total Cost of sales Gross margin GM % Ending inventory. Dr. Inventory Cr. Sundry $500,000 $500,000 Event By-product inventoried

Same Same
Dr. Inventory-BPr Cr. Inventory-Main $500,000 $500,000 $250,000 $250,000

N/A
Dr. A/R Cr. Sales (BP) $250,000 $250,000

Dr. A/R Cr. Inventory-BPr

Joint costs with by-products and inventories: Solution

No value assigned to byproduct $700,000 1.Purchase of Dr. Inventory Cr. A/P $700,000 logs 2.Additional pre-split costs 3.Recognition of by-product 4.Sale of byproduct 5.Sales of main product 6.Cost of sales (75% main) 7. Sales: Main By-product Total Cost of sales Gross margin GM % Ending inventory. Dr. Inventory Cr. Sundry $500,000 $500,000 Event By-product inventoried

Same Same
Dr. Inventory-BPr Cr. Inventory-Main $500,000 $500,000 $250,000 $250,000

N/A
Dr. A/R Cr. Sales (BP) Dr. A/R Cr. Sales $250,000 $250,000 $750,000 $750,000

Dr. A/R Cr. Inventory-BPr

Same

Joint costs with by-products and inventories: Solution

No value assigned to byproduct $700,000 1.Purchase of Dr. Inventory Cr. A/P $700,000 logs 2.Additional pre-split costs 3.Recognition of by-product 4.Sale of byproduct 5.Sales of main product Dr. Inventory Cr. Sundry $500,000 $500,000 Event By-product inventoried

Same Same
Dr. Inventory-BPr Cr. Inventory-Main $500,000 $500,000 $250,000 $250,000

N/A
Dr. A/R Cr. Sales (BP) Dr. A/R Cr. Sales $250,000 $250,000 $750,000 $750,000 $900,000 $900,000

Dr. A/R Cr. Inventory-BPr

Same
Dr. CGS Cr. Inventory $525,000 $525,000

Dr. CGS 6.Cost of Cr. Inventory sales (75% main) 7. Sales: Main By-product Total Cost of sales Gross margin GM % Ending inventory.

Joint costs with by-products and inventories: Solution

No value assigned to byproduct $700,000 1.Purchase of Dr. Inventory Cr. A/P $700,000 logs 2.Additional pre-split costs 3.Recognition of by-product 4.Sale of byproduct 5.Sales of main product 6.Cost of sales (75% main) 7. Sales: Main By-product Total Cost of sales Gross margin GM % 8. Ending inventory. Dr. Inventory Cr. Sundry $500,000 $500,000 Event By-product inventoried

Same Same
Dr. Inventory-BPr Cr. Inventory-Main $500,000 $500,000 $250,000 $250,000

N/A
Dr. A/R Cr. Sales (BP) Dr. A/R Cr. Sales Dr. CGS Cr. Inventory $250,000 $250,000 $750,000 $750,000 $900,000 $900,000

Dr. A/R Cr. Inventory-BPr

Same
Dr. CGS Cr. Inventory $525,000 $525,000

$ 750,000 $ 250,000 $1,000,000 $ 900,000 $ 100,000 10 %

Joint costs with by-products and inventories: Solution

No value assigned to byproduct $700,000 1.Purchase of Dr. Inventory Cr. A/P $700,000 logs 2.Additional pre-split costs 3.Recognition of by-product 4.Sale of byproduct 5.Sales of main product Dr. Inventory Cr. Sundry $500,000 $500,000 Event By-product inventoried

Same Same
Dr. Inventory-BPr Cr. Inventory-Main $500,000 $500,000 $250,000 $250,000

N/A
Dr. A/R Cr. Sales (BP) Dr. A/R Cr. Sales $250,000 $250,000 $750,000 $750,000

Dr. A/R Cr. Inventory-BPr

Same
Dr. CGS Cr. Inventory $525,000 $525,000

Dr. CGS $900,000 6.Cost of Cr. Inventory $900,000 sales (75% main) 7. Sales: $ 750,000 Main $ 250,000 By-product $1,000,000 Total $ 900,000 Cost of sales Gross margin $ 100,000 10 % GM % Ending inventory. $300,000 (main product, 25% of $1,200,000)

Joint costs with by-products and inventories: Solution

No value assigned to byproduct $700,000 1.Purchase of Dr. Inventory Cr. A/P $700,000 logs 2.Additional pre-split costs 3.Recognition of by-product 4.Sale of byproduct 5.Sales of main product Dr. Inventory Cr. Sundry $500,000 $500,000 Event By-product inventoried

Same Same
Dr. Inventory-BPr Cr. Inventory-Main $500,000 $500,000 $250,000 $250,000

N/A
Dr. A/R Cr. Sales (BP) Dr. A/R Cr. Sales $250,000 $250,000 $750,000 $750,000

Dr. A/R Cr. Inventory-BPr

Same
Dr. CGS Cr. Inventory $525,000 $525,000

Dr. CGS $900,000 6.Cost of Cr. Inventory $900,000 sales (75% main) 7. Sales: $ 750,000 Main $ 250,000 By-product $1,000,000 Total $ 900,000 Cost of sales Gross margin $ 100,000 10 % GM % 8. $300,000 (main product, 25% of Ending $1,200,000) inventory.

$ $ $ $ $

750,000 -0750,000 525,000 225,000 30 %

Joint costs with by-products and inventories: Solution

No value assigned to byproduct $700,000 1.Purchase of Dr. Inventory Cr. A/P $700,000 logs 2.Additional pre-split costs 3.Recognition of by-product 4.Sale of byproduct 5.Sales of main product Dr. Inventory Cr. Sundry $500,000 $500,000 Event By-product inventoried

Same Same
Dr. Inventory-BPr Cr. Inventory-Main $500,000 $500,000 $250,000 $250,000

N/A
Dr. A/R Cr. Sales (BP) Dr. A/R Cr. Sales $250,000 $250,000 $750,000 $750,000

Dr. A/R Cr. Inventory-BPr

Same
Dr. CGS Cr. Inventory $525,000 $525,000

Dr. CGS $900,000 6.Cost of Cr. Inventory $900,000 sales (75% main) 7. Sales: $ 750,000 Main $ 250,000 By-product $1,000,000 Total $ 900,000 Cost of sales Gross margin $ 100,000 10 % GM % 8. $300,000 (main product, 25% of Ending $1,200,000) inventory.

$ $ $ $ $

750,000 -0750,000 525,000 225,000 30 %

$425,000 (main product, 25% of $700m, and by-product, 50% of $500m)