Termpaper on Joint product costing
1.0: Abstract
A new paradigm has been emerged in the present industrial sector where a manufacturing organization uses a single process to produce more than one product. This paradigm adds complexity in the simultaneous production of more than one product from a joint process. Their determination at the cost of such products, individually, hence posses a difficult task to the cost accountant especially because they are of such varied nature characterized by many varieties. Despite difficulty it is possibly essential to make a fair and equitable allocation of cost to each product since this is critically important not only for stock valuation and income determination but also increasingly for assessment of excise duty, transfer pricing etc, and also for divisional profitability etc.
This study concentrates to explore the area not so much conceptually, but more as a practical guide to illustrate some of the methods adopted in practice by the manufactures’. The methods fall under two broad categories
a) Market value basis and
b) Physical measurement basis.
The market value basis adopts the accepted cost concept of what the product can bear while the physical measurement basis is based on physical measures as weight, volume etc. Literature survey has highlighted certain other methods as techno commercial factor evaluation basis and input based cost driver basis. Robert Kaplan and Antony Atkinson have given an illustration as how the joint and by-products costing method can be used as a tool in the resource allocation process.
The paper aims to generate further discussion, with illustration from more industries to help formulate proper guidelines on this complex issue of joint and by-product costing.
2.0: Acknowledgement
Going through various sources of information we arrived at the generally accepted cost accounting practices where the vital inputs on concepts along with practical examples were compiled from the articles and textbooks of
A new paradigm has been emerged in the present industrial sector where a manufacturing organization uses a single process to produce more than one product. This paradigm adds complexity in the simultaneous production of more than one product from a joint process. Their determination at the cost of such products, individually, hence posses a difficult task to the cost accountant especially because they are of such varied nature characterized by many varieties. Despite difficulty it is possibly essential to make a fair and equitable allocation of cost to each product since this is critically important not only for stock valuation and income determination but also increasingly for assessment of excise duty, transfer pricing etc, and also for divisional profitability etc.
This study concentrates to explore the area not so much conceptually, but more as a practical guide to illustrate some of the methods adopted in practice by the manufactures’. The methods fall under two broad categories
a) Market value basis and
b) Physical measurement basis.
The market value basis adopts the accepted cost concept of what the product can bear while the physical measurement basis is based on physical measures as weight, volume etc. Literature survey has highlighted certain other methods as techno commercial factor evaluation basis and input based cost driver basis. Robert Kaplan and Antony Atkinson have given an illustration as how the joint and by-products costing method can be used as a tool in the resource allocation process.
The paper aims to generate further discussion, with illustration from more industries to help formulate proper guidelines on this complex issue of joint and by-product costing.
2.0: Acknowledgement
Going through various sources of information we arrived at the generally accepted cost accounting practices where the vital inputs on concepts along with practical examples were compiled from the articles and textbooks of
References: 1. Advanced Management Accounting by Robert S. Kaplan and Anthony A. Atkinson. 2. Cost Accounting a Managerial Emphasis by Horngren, Foster and Datar. 3. A study of Joint and By-Product Costing in the UK- K. Slater & C. Wootten .CIMA Publication. 4. Gopalakrishnan. M, Monograph on Joint and By Product Costing. 5. Glossary of Management Accounting Terms. ICWAI Publication. 6. Terminology of Management Accounting – CIMA Publication.