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
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
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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