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Joint Cost Allocation

A.   Characteristics--a common manufacturing process simultaneously produces two
or more products from a common input
1.   Joint Costs--joint costs are the costs of the common manufacturing
process
2.   Joint Products--joint products are the products produced from a common
input and a common manufacturing process
a.   By-products--by-products are joint products that are relatively
minor in quantity and/or value
3.   Split-off Point--the split-off point is the stage of the common
manufacturing process where the joint products are separated

B.   Joint Cost Allocation--joint costs need to be allocated to the joint
products for various reasons (such as inventory valuation for financial
accounting purposes, measuring profitability of joint products, pricing
decisions, cost reimbursement, etc.)
1.   Physical Quantities Method--joint costs are allocated to the joint
products based on their relative physical measure (such as volume,
weight, etc.)
a.   Illustration--a corporation incurred joint costs of \$2,400 in
manufacturing Product A and Product B to the split-off point;
Product A weighed 700 pounds and had a sales value at the split-off
point of \$1,800; Product B weighed 300 pounds and had a sales value
at the split-off point of \$1,200
Cost Allocation:
Product A = 700 / (700 + 300) x 2,400 = 1,680
Product B = 300 / 1,000 x 2,400       =   720
2,400

Income Statement:
Product A   Product B     Total _
Sales                 1,800       1,200       3,000
Cost of Goods Sold     1,680         720       2,400
Gross Margin             120         480         600...