COSTING BY-PRODUCTS AND JOINT PRODUCTS

By-product is generally used to denote a product relatively small total

value produced simultaneously with a product of greater total value.
The product with the greater value, commonly called the main product,
is usually produced in greater quantities than the by-product.

Joint products are produced simultaneously by a common process or serries

of processes, with each product possessing more than nominal value in the form
in which its produced. The production is simultaneous because the manufacturing
process inevitably creates all of the products.

The split-off point is defined as the point at which these several products emerge
as separable, individual units. Before that point, the products form a homogeneous
whole.

By products can be classified into two groups according to their marketable

condition at split off point:
1) those sold in their original form without need of further processing
2) those that require further processing to be salable

Joint Costs can be defined as the cost that arises from the simultaneous
manufacturing of products produced from the same process. Whenever two
or more different joint or by-products are created from a single resources
a joint cost results. A joint cost is incurred prior to the split-off point.

The total production cost of multiple products involve both joint costs and
separate, individual product costs. These separable product costs are
identifiable with the individual product and, generally, need no allocation.
t relatively small total
greater total value.
led the main product,
by-product.

mon process or serries

nominal value in the form
ecause the manufacturing

e several products emerge

ducts form a homogeneous

g to their marketable

r processing

the simultaneous
ess. Whenever two
single resources
it-off point.

both joint costs and

oduct costs are
ed no allocation.
METHOD OF COSTING BY-PRODUCTS

Method 1, gross revenue from sales of the by-products is presented on

the income statement as any one of the following:
a) Other income
b) Additional sales revenue
c) A deduction from the cost of good sold of the main product
d) A deduction from the total production cost of the main product

Method 1a) By-product revenue as Other Income

Sales (main product, 10,000 unit @ $2)

Cost of Goods Sold:
Beginning inventory (1,000 unit @ $1.50)
Total production cost ( 11,000 unit @ $ 1.50)
Cost of goods available for sale
Ending inventory (2,000 unit @ $ 1.50)
Gross Profit
Marketing and Administrative Expenses
Operating Income
Other income: Revenue from sales of by-product
Income before income tax

Method 1b: By-product revenue as additional sales revenue

Method 1c: By product revenue as a deduction from the cost of goods sold
Method 1d: By-product revenue as a deduction from production cost

Sales (main product, 10,000 unit @ $2)

Cost of Goods Sold:
Beginning inventory (1,000 unit @ $1.35)
Total production cost ( 11,000 unit @ $ 1.50) $ 16,500
Revenue from sales of by-product $ 1,500
Net production cost
Cost of goods available for sale (12.000 unit @ $ 1.3625)
Ending inventory (2,000 unit @ $ 1.3625)
Gross Profit
Marketing and Administrative Expenses
Operating Income

Method 2; Recognition of Net Revenue

Net revenue recognize the need for assigning traceable costs to the by-product
It does not attempt, however, to allocate any joint production cost to the by-produc
The costs incurred after the split-off point to process or market the by-product
are recorded in account separate from those for the main products.
By-product figures are shown on the income statement using one of the four of
method 1.

Method 3: Replacement Cost Method

Ordinarily is used by companies whose by-products are used somewhere
within the same company. The existence of the by-product removes the
necessity of purchasing equivalent materials from suppliers.
Method 4: Market Value (Reversal Cost) Method
is basically similar to the technique illustrated in method 1d. However, it reduced
the manufacturing cost of the main product, not by the actual revenue received, bu
by an estimate of the by-product's value at the time of recovery.

METHODS OF ALLOCATING JOINT PRODUCT COST TO JOINT PRODUCTS

Joint production cost (incurred before split-off), can be allocated to joint products
under one of the following methods:
1) The Market Value method, based on the relative market values of the individual
product
2) The average unit cost method
3) The weighted average method, based on predetermined weighting factors
4) The quantitative unit method, based on some physical measurement unit
such as weight, linear measure, or volume.
ented on

$ 20,000

$ 1,500
$ 16,500
$ 18,000
$ 3,000 $ 15,000
$ 5,000
$ 2,000
$ 3,000
$ 1,500
$ 4,500

of goods sold
 $ 20,000

$ 1,350

$ 15,000
$ 16,350
$ 2,725 $ 13,625
$ 6,375
$ 2,000
$ 4,375

to the by-product
ost to the by-product.
t the by-product

one of the four of

somewhere
moves the
owever, it reduced
evenue received, but

OINT PRODUCTS

ed to joint products

ues of the individual

eighting factors
asurement unit
MARKET VALUE METHOD
Joint Product salable at Split-off

Market Value
Total Market
PRODUCT Unit Produced per unit at
Value
Split-off

A 20,000 $ 0.25 $ 5,000

B 15,000 $ 3.00 $ 45,000
C 10,000 $ 3.50 $ 35,000
D 15,000 $ 5.00 $ 75,000
TOTAL $ 160,000

Under the market value method, each joint product yields the same gross profit pe
asumming the units are sold without further processing. This can be illustrated as f
assuming no beginning inventories:

Total A B
Sales - unit 52,000 18,000 12,000
Ending Inventories 8,000 2,000 3,000

Sales - dollars $ 138,500 $ 4,500 $ 36,000

Production cost $ 120,000 $ 3,750 $ 33,750
Less ending invent. $ 16,125 $ 375 $ 6,750
Cost of Goods sold $ 103,875 $ 3,375 $ 27,000
Gross Profit $ 34,625 $ 1,125 $ 9,000
% of Gross Profit 25.0% 25.0% 25.0%
 Total A B
Sales - unit 52,000 18,000 12,000
Harga jual $ 0.25 $ 3.00
138,500 $ 4,500 $ 36,000

Production cost $ 120,000 $ 3,750 $ 33,750

Cost per unit $ 0.19 $ 2.25
Ending Inventories 8,000 2,000 3,000
Ending Inventories ($) $ 16,125 $ 375 $ 6,750
COGS $ 103,875 $ 3,375 $ 27,000
Gross Profit $ 34,625 $ 1,125 $ 9,000
% of Gross Profit 25.0% 25.0% 25.0%
 Ratio of
Apportionment
Product Value
of Joint
to Total
Production Cost
Market Value

3.125% $ 3,750
28.125% $ 33,750
21.875% $ 26,250
46.875% $ 56,250
100.0% $ 120,000

e same gross profit percentage,

can be illustrated as follows,

C D
8,000 14,000
2,000 1,000

$ 28,000 $ 70,000
$ 26,250 $ 56,250
$ 5,250 $ 3,750
$ 21,000 $ 52,500
$ 7,000 $ 17,500
25.0% 25.0%
 C D
8,000 14,000
$ 3.50 $ 5.00
$ 28,000 $ 70,000

$ 26,250 $ 56,250
$ 2.63 $ 3.75
2,000 1,000
$ 5,250 $ 3,750
$ 21,000 $ 52,500
$ 7,000 $ 17,500
25.0% 25.0%
Joint Product Not salable at split-off
Subsequent
Ultimate
Processing
PRODUCT Market Value
Cost (after
per unit
split-off)
A $ 0.50 $ 2,000
B $ 5.00 $ 10,000
C $ 4.50 $ 10,000
D $ 8.00 $ 28,000

Ultimate
Unit Ultimate
PRODUCT Market Value
Produced Market Value
per unit

A $ 0.50 20,000 $ 10,000

B $ 5.00 15,000 $ 75,000
C $ 4.50 10,000 $ 45,000
D $ 8.00 15,000 $ 120,000
Total $ 250,000

Total A B
Sales - unit 52,000 18,000 12,000
Ending Inventories 8,000 2,000 3,000

Sales - dollars $ 217,000 $ 9,000 $ 60,000

Production cost $ 120,000 $ 4,800 $ 39,000
Further Processing Cost $ 50,000 $ 2,000 $ 10,000
Total $ 170,000 $ 6,800 $ 49,000
Less ending invent. $ 22,227 $ 680 $ 9,800
Cost of Goods sold $ 147,773 $ 6,120 $ 39,200
Gross Profit $ 69,227 $ 2,880 $ 20,800
% of Gross Profit 31.9% 32.0% 34.7%

Total A B
Ultimate sales value $ 250,000 $ 10,000 $ 75,000
Less 32% Gross Profit $ 80,000 $ 3,200 $ 24,000
Total Cost $ 170,000 $ 6,800 $ 51,000
Further processing cost $ 50,000 $ 2,000 $ 10,000
Joint Cost $ 120,000 $ 4,800 $ 41,000

AVERAGE UNIT COST METHOD

Total Joint Production Cost $ 120,000

=
The number of units produced 60,000

Apportionme
Unit
PRODUCT nt of Joint
Produced
Cost

A 20,000 $ 40,000
B 15,000 $ 30,000
C 10,000 $ 20,000
 D 15,000 $ 30,000
60,000 $ 120,000

WEIGHTED AVERAGE METHOD

Product A - 3 points
Product B - 12 points
Product C - 13.5 points
Product D - 15 points

Unit Weighted
PRODUCT Points
Produced Units

A 20,000 3.0 60,000

B 15,000 12.0 180,000
C 10,000 13.5 135,000
D 15,000 15.0 225,000
60,000 600,000

Total Joint Production Cost $ 120,000

=
Total number of weighted units 600,000
 Total
Processing Apportionment Total
Hypothetical Production
Cost (after of Joint Production
Market Value Cost
split-off) Production Cost Cost
Percentage
$ 2,000 $ 8,000 $ 4,800 $ 6,800 68.0%
$ 10,000 $ 65,000 $ 39,000 $ 49,000 65.3%
$ 10,000 $ 35,000 $ 21,000 $ 31,000 68.9%
$ 28,000 $ 92,000 $ 55,200 $ 83,200 69.3%
$ 50,000 $ 200,000 $ 120,000 $ 170,000 68.0%

C D
8,000 14,000
2,000 1,000

$ 36,000 $ 112,000
$ 21,000 $ 55,200
$ 10,000 $ 28,000
$ 31,000 $ 83,200
$ 6,200 $ 5,547
$ 24,800 $ 77,653
$ 11,200 $ 34,347
31.1% 30.7%

C D
$ 45,000 $ 120,000
$ 14,400 $ 38,400
$ 30,600 $ 81,600
$ 10,000 $ 28,000
$ 20,600 $ 53,600

= $2 / unit
 Apportionmen
Cost per Unit
t of Joint Cost

$ 0.20 $ 12,000
$ 0.20 $ 36,000
$ 0.20 $ 27,000
$ 0.20 $ 45,000
$ 120,000

= $ 0.20 per unit

SOAL JOINT COST

PT EGP & Co memproduksi 3 jenis produk A, B dan C, sebagai hasil dari joint process
Selama bulan Juli 2006 Joint processing cost adalah sebesar Rp
Rincian tentang ke tiga jenis produk adalah sebagai berikut:

Produk
A
Produksi dalam unit 1,000
Unit yang dijual 800
Biaya proses lanjut Rp225,000,000
Harga Jual per unit Rp900,000

Diminta:
1). Hitung biaya produksi per unit dan total yang dibebankan pada persediaan akhir
masing-masing produk, menggunakan metode alokasi joint cost ke produk berdasar
market value method ( Persediaan barang jadi per 1 Juli 2006 tidak ada / nol)

2). Konsumen ingin membeli semua output masing-masing produk setelah split off point
(tanpa diproses lanjut) dengan harga sebagai berikut :
Produk A = Rp540,000
Produk B = Rp585,000
Produk C = Rp225,000
Produk yang mana yang disetujui dapat dijual setelah split off point dengan harga
tersebut di atas ?

3) Apakah jawab untuk produk B pada soal 2) berubah, jika biaya proses lanjut sebesar
Rp 540.000.000 tersebut termasuk di dalamnya fixed cost
B sebesar = Rp 162,000,000
Buat jawaban saudara disertai perhitungan yang jelas!
E8-6 Joint Cost = $ 288,000
A
1 Unit Produced 1,000
unit dijual 800
2 Separable process costs $ 25,000
3 Unit Sales price $ 100.00

4 Market Value (1x3) $ 100,000

5 Separable process costs $ 25,000
6 Hypotethical Value (4-5) $ 75,000
7 Percentage from total 18.8%
8 Joint Cost allocation $ 54,000

Cost
Joint Cost $ 54,000
Bi Proses lanjut $ 25,000
Total Cost $ 79,000

Produksi 1,000

1) Cost / unit $ 79.00

Nilai Persediaan total $15,800

2) Harga Konsumen $ 60.00

Joint Cost per unit $ 54.00
Margin at split off point $ 6.00

Harga Jual $ 100.00

Cost per unit $ 79.00
Margin stlh proses lanjut $ 21.00

3)
Fixed cost per unit prod B = $18,000

Harga Jual $80

Relevant Cost $ 57
Margin = $23
k A, B dan C, sebagai hasil dari joint process
cost adalah sebesar Rp 2,592,000,000
ah sebagai berikut:

Produk
B C
3,000 5,000
2,500 4,300
Rp540,000,000 Rp945,000,000
Rp720,000 Rp450,000

al yang dibebankan pada persediaan akhir

metode alokasi joint cost ke produk berdasar
ang jadi per 1 Juli 2006 tidak ada / nol)

ut masing-masing produk setelah split off point

ebagai berikut :

t dijual setelah split off point dengan harga

al 2) berubah, jika biaya proses lanjut sebesar

amnya fixed cost yang dialokasikan ke produk

gan yang jelas!

 B C TOTAL
3,000 5,000
2,500 4,300
$ 60,000 $ 105,000
$ 80.00 $ 50.00

$ 240,000 $ 250,000
$ 60,000 $ 105,000
$ 180,000 $ 145,000 $ 400,000
45.0% 36.3% 100.0%
$ 129,600 $ 104,400 $ 288,000

$ 129,600 $ 104,400 $ 288,000

$ 60,000 $ 105,000 $ 190,000
$ 189,600 $ 209,400 $ 478,000

3,000 5,000

$ 63.20 $ 41.88

$31,600 $29,316

$ 65.00 $ 25.00
$ 43.20 $ 20.88
$ 21.80 $ 4.12

$ 80.00 $ 50.00
$ 63.20 $ 41.88
$ 16.80 $ 8.12
 : 3,000 $6

(jadi lebih baik diproses lanjut)

E8-2 Main By Product
Product A
Sales $ 75,000 $ 6,000
Manuf cost after separation $ 11,500 $ 1,100
Mark & Adm Expenses $ 6,000 $ 750
Manuf cost before split-off

Profit A 15.0%
Profit B 12.0%

A
Market Value $ 6,000
profit allowed $ 900
$ 5,100
Mark & Adm Expenses $ 750
$ 4,350
Manuf cost after separation $ 1,100
Estimated value after split-off $ 3,250

Manufacturing Cost Before Separation :

1) Main By Product
Product A
Manuf cost before separate $ 32,620 $ 3,250

2) INCOME STATEMENT
 Main By Product
Product A
Sales $ 75,000 $ 6,000
Cost:
Joint Cost $ 32,620 $ 3,250
Manuf cost after separation $ 11,500 $ 1,100
Total Cost $ 44,120 $ 4,350
Gross Profit $ 30,880 $ 1,650
Mark & Adm Expenses $ 6,000 $ 750
Operating Profit $ 24,880 $ 900

E8-5 Joint Cost = $ 150,000

E S
1 Unit Produced 30,000 15,000
2 Separable process costs $ 30,000 $ 24,000
3 Unit Sales price $ 4.30 $ 6.60

4 Market Value (1x3) $ 129,000 $ 99,000

5 Separable process costs $ 30,000 $ 24,000
6 Hypotethical Value (4-5) $ 99,000 $ 75,000
7 Percentage from total 44.0% 33.3%
8 Joint Cost allocation $ 66,000 $ 50,000

2) S sold at split-off point 15,000 x

 Cost of S at split-off
Gross profit of S

S sold after further process 15,000 x

Cost:
Joint Cost
Separable process costs
Total Cost
Gross profit

E8-6 Joint Cost = $ 288,000

Product
A B
Units Produced 1,000 3,000
Units Sold 800 2,500
Further processing cost $ 25,000 $ 60,000
Sales price per unit $ 100 $ 80

1) Market value $ 100,000 $ 240,000

Further processing cost $ 25,000 $ 60,000
Hypothetical Value $ 75,000 $ 180,000
% from total 18.75% 45.00%
Allocation Joint Cost $ 54,000 $ 129,600
2) Customer Price at split-off $ 60 $ 65
Cost per unit after split-off $ 54 $ 43
Gross Profit per unit $ 6 $ 22

Sales Price per unit $ 100 $ 80

Cost per unit:
Cost per unit after split-off $ 54.00 $ 43.20
Further processing cost/unit $ 25.00 $ 20.00
Total Cost / unit $ 79.00 $ 63.20
Gross Profit / unit $ 21.00 $ 16.80

Jadi, produk B yang disarankan langsung dijual setelah split-off point

karena gross profit margin-nya $ 22 per unit, lebih besar dibanding
jika harus memprosesnya lebih lanjut, yang hanya mendapatkan $ 16.80
per unit.

3) Untuk Produk B:

B diproses B langsung
lebih lanjut dijual at split-off
Sales $ 240,000 $ 195,000
Cost:
Cost at split off $ 129,600 $ 129,600
Further processing cost $ 60,000 $ 18,000
Total Cost $ 189,600 $ 147,600
Gross Profit $ 50,400 $ 47,400
 Jadi jika include fixed cost $ 18.000, maka gross profit margin lebih besa
jika diproses lebih lanjut

4) Jika fixed cost $ 18.000 dapat digunakan untuk alternatif lain yang meng
$ 6,000 - $ 1,000 = $ 5,000
Untuk Produk B:
B diproses B langsung
lebih lanjut dijual at split-off

Sales $ 240,000 $ 195,000

Other alternative income $ 5,000
Total sales $ 240,000 $ 200,000
Cost:
Cost at split off $ 129,600 $ 129,600
Further processing cost $ 60,000 $ 18,000
Total Cost $ 189,600 $ 147,600
Gross Profit $ 50,400 $ 52,400

Jadi lebih baik jika produk B langsung dijual setelah split-off

karena gross profitnya lebih besar jika langsung dijual setelah
split-off, sedangkan fixed cost digunakan untuk mendapatkan
alternative income sebesar $ 5,000
By Product
TOTAL
B
$ 3,500 $ 84,500
$ 900 $ 13,500
$ 550 $ 7,300
$ 37,500

B
$ 3,500
$ 420
$ 3,080
$ 550
$ 2,530
$ 900
$ 1,630

By Product
TOTAL
B
$ 1,630 $ 37,500
By Product
TOTAL
B
$ 3,500 $ 84,500

$ 1,630 $ 37,500
$ 900 $ 13,500
$ 2,530 $ 51,000
$ 970 $ 33,500
$ 550 $ 7,300
$ 420 $ 26,200

C TOTAL
13,000
$ 27,000
$ 6.00

$ 78,000
$ 27,000
$ 51,000 $ 225,000
22.7% 100.0%
$ 34,000 $ 150,000 Jawab (1)

$ 5.25 $ 78,750
 $ 50,000
$ 28,750

$ 6.60 $ 99,000

$ 50,000
$ 24,000
$ 74,000
$ 25,000

oduct
C
5,000
4,300
$ 105,000
$ 50

$ 250,000
$ 105,000
$ 145,000 $ 400,000
36.25% 100.00%
$ 104,400 $ 288,000
 $ 25
$ 21
$ 4

$ 50

$ 20.88
$ 21.00
$ 41.88
$ 8.12

etelah split-off point

besar dibanding
mendapatkan $ 16.80

at split-off
profit margin lebih besar

ernatif lain yang menghasilkan

at split-off

ah split-off
ijual setelah
endapatkan