Accounting Assignment Help With By-Product Costing

7.4 By-product costing

Practically speaking by-products are not costed. They are of insignificant value as compared to the main product(s). Value of by-products is deducted from the joint cost to arrive at the cost of main products.

Let us see the product costing structure

Input 20,000

Units

Total cost $ 100,000

Less: By product value $ 4,000

Cost of main product $96,000

Cost per unit of main product is $ 6.

Sometimes by-products are also processed further. In that situation Reverse cost method is followed for by-product costing. This method suggests deducting separate cost, selling and distribution cost and reasonable profit to arrive at the cost of by-product at the time of split off point.

Continuing with the example given above, let us suppose B is sold for 16,000, separation processing cost is $ 8,000 and per unit packaging cost is $ 3. A profit of 10% is expected on cost. Applying reverse cost method, cost of by-product may be arrived at as follows.

Sales $ 16,000

Separate process cost $ 8,000

Selling cost $ 3,000

$ 11,000

Profit $ 1,100 $ 12,100

Cost of by-product B at $ 3,900

Split off point

So, the joint cost is apportioned between M and B as follows.

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