Scribd Logo
Upload

Welcome to Scribd!

  • 241 views

    9 - Joint Products and by Products - By-Product

    Uploaded by

    Chris Aruh Borsalina
    This document discusses two methods for accounting for by-products: 1) By-products are recognized when sold and the revenue is presented as other income, additional sales, or deduction from cost of goods sold. 2) By-products are recognized when produced by allocating joint costs and deducting the expected net realizable value or reversal cost of by-products from the production costs of the main product. The document provides an illustration and calculation of the income statement under each method using data from a company that produces a main product and by-product.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    9 - Joint Products and by Products - By-Product

    Uploaded by

    Chris Aruh Borsalina
    241 views3 pages
    This document discusses two methods for accounting for by-products: 1) By-products are recognized when sold and the revenue is presented as other income, additional sales, or deduction from cost of goods sold. 2) By-products are recognized when produced by allocating joint costs and deducting the expected net realizable value or reversal cost of by-products from the production costs of the main product. The document provides an illustration and calculation of the income statement under each method using data from a company that produces a main product and by-product.

    Original Title

    9_Joint Products and by Products - By-Product

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses two methods for accounting for by-products: 1) By-products are recognized when sold and the revenue is presented as other income, additional sales, or deduction from cost of goods sold. 2) By-products are recognized when produced by allocating joint costs and deducting the expected net realizable value or reversal cost of by-products from the production costs of the main product. The document provides an illustration and calculation of the income statement under each method using data from a company that produces a main product and by-product.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    241 views3 pages

    9 - Joint Products and by Products - By-Product

    Uploaded by

    Chris Aruh Borsalina
    This document discusses two methods for accounting for by-products: 1) By-products are recognized when sold and the revenue is presented as other income, additional sales, or deduction from cost of goods sold. 2) By-products are recognized when produced by allocating joint costs and deducting the expected net realizable value or reversal cost of by-products from the production costs of the main product. The document provides an illustration and calculation of the income statement under each method using data from a company that produces a main product and by-product.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    ACCOUNTING FOR BY-PRODUCTS

    By-products are produced from a common raw material and/or common manufacturing process. Joint
    costs are not directly traceable to either main products or by-products.

    Since by-products are produced incidental to the processing of the main products, allocation
    methods differ from those used for main products.

    The methods of costing by-products fall into two categories:


    Category 1 – by-products are recognized when sold
    Category 2 – by-products are recognized when produced

    CATEGORY 1 – BY-PRODUCTS ARE RECOGNIZED WHEN SOLD


    By-products are considered of minor importance and therefore no income is recorded from them until
    they are sold. The net revenue may be presented on the income statement as (a) other income, (b)
    additional sales revenue, (c) a deduction from the cost of goods sold of the main product.

    ILLUSTRATION:
    The Laguna Chemical Company produces a product known as “Choco” from which by-products results.
    This product can be sold at P1.00 a pound. The manufacturing costs of the main product and by-
    product up to the point of separation for the three month period ending March 31, 2020 follows:
    materials, P30,000; Labor, P17,400; Overhead, P17,400.

    The units processed were 20,000 pounds of the main product and 2,000 pounds of the by-product.
    During the period 18,000 pounds of the main product were sold at P10.00 a pound and 1,000 pounds
    of the by-product.

    Selling and administrative expenses applicable to the main product is 30% of sales.

    Required: Income statements assuming that the sales of the by-product is treated as income, using
    the different methods.
    CATEGORY 2 – BY-PRODUCTS ARE RECOGNIZED WHEN PRODUCED
    When the net by-product income is significant, management may consider allocating joint cost to
    the by-product.

    The expected value of the by-product produced is shown on the income statement as a deduction from
    the total production cost of the main product.

    The two methods to compute the peso amount of the by-product to be deducted from production costs
    are (1) Net realizable value and (2) Reversal cost method

    NET REALIZABLE VALUE METHOD


    The expected sales value of the by-product produced is reduced by the expected additional
    processing costs and marketing and administrative expenses

    The resulting net realizable value of the by-product is deducted from the total production costs
    of the main product.

    ILLUSTRATION:
    The Laguna Chemical Company produces a product known as “Choco” from which by-products results.
    This product can be sold at P1.00 a pound. The manufacturing costs of the main product and by-
    product up to the point of separation for the three month period ending March 31, 2020 follows:
    materials, P30,000; Labor, P17,400; Overhead, P17,400.

    The units processed were 20,000 pounds of the main product and 2,000 pounds of the by-product.
    During the period 18,000 pounds of the main product were sold at P10.00 a pound and 1,000 pounds
    of the by-product. Selling and administrative expenses applicable to the main product is 30% of
    sales.

    Required: Income statements assuming that the sales of the by-product is treated as reduction of
    the production cost of the main product.
    REVERSAL COST METHOD

    You might also like