ACC 122: Cost Accounting and Control

Student Activity Sheet Module # 23

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Lesson title: Accounting for Joint and By-products Materials:

Lesson Objectives: Textbook, SAS, & calculator
At the end of this module, I should be able to References:
1. Allocate joint costs to the joint products using different Hansen & Mowen; Cost
allocation methods. Accounting&Control; 2019 Edition
Pedro P. Guerrero
2. Explain the treatment of By-products and differentiate its cost Practical Accounting 2
allocation methods.

Productivity Tip:
After finishing this module, list down important concepts and terms that you remember. Do this for
about 15 minutes. Compare your list to the module materials after and see what you got right or if you missed
something.

A. LESSON PREVIEW/REVIEW

1) Activity 1 : Introduction/Review (3 mins)

Hi! This is the last topic of this course and for your review from the previous topic,
answer the problem:
Manila Inc. manufactures products P, Q and R from a joint process. Additional
information is as follows:
Product

P Q R Total

Units Produced 4,000 2,000 1,000 P7,000

Joint Cost P36,000 ? ? 60,000

Sales Value at Split-off ? ? P15,000 100,000

Additional Costs if processed further P7,000 P5,000 P3,000 15,000

Sales Value if processed further P70,000 P30,000 P20,000 120,000

Assuming the joint costs are allocated using the relative sales value at split-off approach,
what was the sales value at split-off for Product P? _________________________

Page 1 of 10
This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 23

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

2) Activity 2 (LO1& LO2): What I Know Chart, part 1 (3 mins)

Alright! Let’s see what you already know, answer the first column (What I know).
Leave the third column (What I Learned) blank at this time.

What I Know Questions What I Learned (Activity 5)

Compare joint product and by-
product.

What are the joint cost allocation

methods for by-products?

Give examples of By-products.

B. MAIN LESSON
1) Activity 3 (LO1 & LO2): Content Notes (20 mins)

Make sure to highlight or underline the important parts!

LO1: Allocate joint costs to the joint products using the remaining allocation method from
the previous module.

Accounting for Joint Product Costs

(Continuation of the Joint Cost Allocation Method for Joint Products)

2) Physical Measures (Units Produced) Method- This method allocated joint costs to products based
on physical measure units. If the allocation is based on physical quantities, each unit of each product
is assigned at the same value regardless of the nature or value of the product.

Sample Illustration:
Assuming Joint Cost is amounting to P10,000 in cutting trees to produce wooden planks,
paper and saw dust.

Product Pounds (Lbs) Percent Allocated Joint Costs

Wooden Planks 3,500 lbs (3.5k/4k)=87.50% P8,750

Page 2 of 10
This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 23

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Paper 300 lbs (300/4k)=7.50% P750

Saw Dust 200 lbs (200/4k)=5% P500

Total 4,000 lbs 100% P10,000

3) Weighted Average Method- some difficulties encountered under the physical units method can be
overcome by using weight factors such as diverse elements as amount of material used, difficulty to
manufacture, time consumed, difference in type of labor used, and size of unit. These factors and
their relative weights are usually combined in a single value, called the weight factor.

Assuming that Joint Cost is P5,000 in purchasing peaches and grades them into fancy, choice,
standard and pie quality; and then cans each grade.
Grades/ Quality Number of Cases Weight Factor Weight Number Percent Allocated Joint
of Cases Cost

Fancy 100 1.30 130 0.21667 P1,083

Choice 120 1.10 132 0.22000 P1,100

Standard 303 1.00 303 0.50500 P2,525

Pie 70 0.50 35 0.05833 P 292

Total 600 P5,000

LO2. Explain the treatment of By-products and differentiate its cost allocation methods

A by-product is a secondary product recovered in the course of manufacturing a primary product.

It is a product whose total sales value is relatively minor in comparison with the sales value of the
main product(s).

Can be characterized by its relationship to the main product

1. By-product resulting from scrap and trimmings
2. Scrap and other residue from joint product types of processes
3. Minor joint product situation

Methods of Accounting for By-Products

1. By-Products are Recognized when Sold. Under this method. no income is recorded from them
until they are sold.
Page 3 of 10
This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 23

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Net By-Product Income= (Actual Sales Revenue) - (Actual Additional Processing Costs and
Marketing and Administrative Expenses).

a. Treatment of the By-Product as Other Revenue (No Joint Cost Allocated to By-Product)
- if the by-product can be sold, the company may choose to credit the sale to “Other Income” or
to set up an account for “Sale of By-Product”. All joint cost is allocated to the main products.

Sample Illustration:
Golden Company manufactures several main products and one by-product from a joint production
process. One production run has the following costs:

Direct Materials P30,000

Direct Labor 7,000

Applied Overhead 9,100

Total Joint Production Cost P52,100

Golden obtains the following products and by-product:

Product A 3,200 lbs.

Product B 800 lbs.

By-Product 60 lbs.

The by-product can be sold for P5 per pound. When the 60 pounds by-product are sold on
account, the journal entry would be:
Accounts Receivable P300

Sale of By-Product P300

Note: Under this method, no cost is assigned to the by-product and it is not carried in inventory. All
joint production cost (P52,100 per batch) is allocated to the main products.

b. Treatment of the By-Product as a Reduction in the Cost of the Main Products.

- Under this method, to account for any revenue received from sale of the by-product as a
reduction in the joint costs of the main products. Using the illustration above:

Page 4 of 10
This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 23

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Total Joint Costs P 52,100

Less: Revenue for the sale of By-Product (300)

Joint Costs Allocated to the Main Products P 51,800

- Using Physical Measures (Units Produced) Method in allocating joint costs to the main
products:
Units Percent Joint Cost Allocation

Product A 3,200 lbs. 80% P41,440

Product B 800 lbs. 20% P10,360

Total 4,000 lbs 100% P51,800

2. By-Products are Recognized when Produced. Under this method the cost of the by-product is
computed by using the following methods:

a. Net Realizable Value Method - The expected sales value of the by-product produced is
reduced by expected additional processing cost and marketing and administrative
expenses.

Expected Additional Processing

Expected Sales Value of By- Cost and Marketing and = Net Realizable Value of By-
Less Administrative Expenses
Product Produced Product

Net Realizable Value of By- = Joint Costs to be Allocated to Main

Total Join Costs Less
Product Products

b. Reversal Cost Method - The expected value of the by-product produced is reduced by the
expected additional processing costs and normal gross profit of the by product (or by the marketing
and administrative expenses and net income). This method is called the reversal cost method
because you have to work backward from the gross revenue to arrive at the estimated joint cost of
the by-product at the point of split-off . The joint cost allocated to the production of the by-product is
deducted from the total production cost of the main product, and charged to a by-product inventory
account. Proceeds from the sale of by-products are treated the same as sale as sales of the main
product.

Page 5 of 10
This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 23

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Additional Note: For additional reading about the joint production process and its method of allocation; and
accounting treatment of by-product, you may refer to your book, Chapter 7 pg. 344- 347 and 354-355. And
for more discussion you may visit this link:

Joint Product Allocation and By-Product : https://bit.ly/By-Product

2) Activity 4: Skill-building Activities (15 mins) SCORE: ________________

Let’s try to practice what you have learned! Check your answers against the Key
to Corrections found at the end of this SAS. Write your score on the space provided.

Part I (LO1, LO2) Multiple Choice

1. The following statement that best describes a by-product is:
A. a product that usually produces a small amount of revenue when compared to the main
product's revenue.
B. a product that does not bear any portion of the joint processing costs
C. a product that is produced from material that would otherwise be scrap
D. a product that has a lower unit selling price than the main product

2. The characteristic that is most often used to distinguish a product as either a joint product or a
by-product is the:
A. amount of labor used in processing the product
B. amount of separable product costs that are incurred in processing
C. amount (i.e., weight, inches, etc.) of the product produced in the manufacturing process
D. relative sales value of the products produced in the process.

3. A company produces three main joint products and one by-product. The by-product's relative
market value is quite low compared to that of the main products. The preferable accounting for
the by-product's net realizable value is as:
A. an addition to the revenues of the other products allocated on their respective net
realizable values
B. revenue in the period in which it is sold
C. a reduction in the joint cost to be allocated to the three main products.
D. a separate net realizable value upon which to allocate some of the joint costs

4. Reporting revenue from by-product sales on the income statement as additional sales revenue:
A. allocates costs to by-products on the basis of quantities produced
B. reduces the main product cost by the estimated market value of the by-product
C. credits main product costs only when the by-product is used in further production
D. overstated ending inventory costs of the main product.

5. By-products are
A. allocated a portion of joint production cost
B. not sufficient alone, in terms of sales value, for management to justify undertaking the
joint process.
Page 6 of 10
This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 23

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

C. also known as scrap

D. the primary reason management undertook the production process.

PART II (LO1&LO2): Solve the following.

Problem 1. A Manufacturing Company makes three products: A and B are considered
main products and C a by-product.
Production and sales for the year were:
220,000 lbs. of Product A, salable at $6.00
180,000 lbs. of Product B, salable at $3.00
50,000 lbs. of Product C, salable at $.90
Production costs for the year:
Joint costs $276,600
Costs after separation:
Product A 320,000
Product B 190,000
Product C 6,900

Required: Using the by-product revenue as a cost reduction and net realizable
value method of assigning joint costs, compute unit costs:

(a) if C is a by-product of the process and

(b) if C is a by-product of B.

Problem 2.
King’s Landing Corporation manufactures joint products and uses a physical unit
method to allocate joint cost. The joint cost is amounting to P50,000 in shearing a sheep’s
wool to produce scarfs, blanket and coats.
Product Pounds (yard)

Scarfs 4,000 yards

Blanket 3,000 yards

Coats 1,000 yards

Total 8,000 yards

Requirement:
Using the physical unit method, what is the joint cost allocated in each product.

3) Activity 5: What I Know Chart, part 2 (5 mins)

It’s time to answer the questions in the “What I Know Chart” in Activity 2. Write
your answers in the “What I Learned” column. Let’s see your improvement!
Page 7 of 10
This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 23

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

4) Activity 6 (LO1 & LO2): Check for Understanding (15 mins)

To better test your knowledge on the topic, answer the given two problems to
enhance your learning. To check if you got it right, you may ask for your teacher for the
correct answer. Be honest in checking. ☺

Problem 1
Mindanao producers manufacture three joint products, JKA, JKB, and JKC and a by-
product JJD, all in a single process. Results for July were as follows.

Materials used……………………….. 10,000 kgs. (P24,000.00)

Conversion cost……………………… P28,000.00
Output:
No. of Kilos Product Sales Value Per Kilo

4,000 JKA P11

3,000 JKB 10

1,000 JKC 26

2,000 JJD 1

The revenue from the by-product is credited to the sales account. Process costs
are apportioned on a relative sales value approach. What was the cost per kilogram of
JKA for the month?

Problem 2
El Propesor is the owner and operator of Heist Bottling, a bulk soft-drink producer.
A single production process yields two bulk soft drinks: Rain Dew (the main product) and
Resi-Dew (the by-product). Both products are fully processed at the split off point, and
there are no separate costs.
For December 2020, the cost of the soft-drink operations is P120,000. Production
and sales data are as follows:
Production (in Liters) Sales (in Liters) Selling Price Per Litter

Main Product: Rain Dew 10,000 8,000 P20

By-Product: Resi- Dew 2,000 1,400 2

There were no beginning inventories on December 1, 2020.

Assuming a by-product is recognized when produced.
Requirement:
a. What is the gross margin for MT Building?
Page 8 of 10
This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 23

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

b. What are the inventory costs reported in the balance sheet on December
31,2020, for Rain Dew and Resi-Dew?
c. What is the gross margin for MT Building?
d. What are the inventory costs reported on December 31, 2020, for Rain
Dew and Resi-Dew?

C. LESSON WRAP-UP

1) Activity 7: Thinking about Learning (4 mins)

1. Work Tracker
You are done with this session! Let’s track your progress. Shade the session number
you just completed.

2. Think about your Learning:

From a rating of 1-10, determine if you have learned all the learning objectives. What is
the reason for your rating?
______________________________________________________________________
______________________________________________________________________
________________________

What part of the module gave you a hard time to comprehend?

______________________________________________________________________
______________________________________________________________________
________________________

Any other questions or concerns you want to raise?

______________________________________________________________________
______________________________________________________________________
________________________

2) Assignment
1. Refer to you book in Chapter 7, page 371
a. Answer all requirements needed in Exercise 7.25

2. Pandayan Company, which began operations in 2020, produces gasoline

and a gasoline line by-product. The following information is available
pertaining to 2013 sales and production:

Page 9 of 10
This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 23

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Total Production Costs to Split-Off point……………………………………………P120,000

Gasoline Sales…………………………………………………………………………P270,000
By-Product Sales………………………………………………………………………P 30,000
Gasoline/Inventory…………………………………………………………………….P 15,000
Additional by-Product costs:
Marketing……………………………………………P10,000
Production…………………………………………..P15,000
Pandayan accounts for the by-product at the time of production.
Requirements:
a. What are Pandayan’s 2020 cost of sales for gasoline?
b. What are Pandayan’s 2020 cost of sales for by-product?

FAQs:
1.What is the main difference between Joint Product and By-Product Costing?
-Joint cost is a cost that benefits more than one product, while a by-product is a product
that is a minor result of a production process and which has minor sales. Joint costing or by-
product costing are used when a business has a production process from which final products
are split off during a later stage of production.

2. When to decide to sell a joint product or to process it further?

-A decision whether to sell a joint product at the split-off point or to process it further and
sell it in a more refined form is called a sell-or-process-further decision. Some of the joint
products may be in final form ready for sale, while others may be processed further. In such
cases managers have to decide whether to sell the unfinished goods at a split-off point or to
process them further. it must be made so as to maximize the profits of the business..

Page 10 of 10
This document is the property of PHINMA EDUCATION.