ACCA F2 - Management Accounting
Let's start with a simple example. Sheep farming is done for
the wool, milk and meat. They are joint products. However, the waste is used as
fertilizers, which is by product. Next we see two different examples. (1) Refining
of crude oil to produce petrol and paraffin which both have similar sales value.
In this case, patrol and paraffin are co-products. (2) Processing wood to make
chairs produce waste in the form of saw dust, which has low sales value than
chairs. In this case, chair is main product and saw dust is by product.
The accounting treatment of "by-product" is
already discussed in very first part of this series under the heading 'normal
loss with scrap value.' By product reduces the cost of the main/joint product
processed in the operation.
Example : Process 1 will extracts 2 joint product and 1 by
product.
Input
Material 50kg @$20/kg Conversion @$10 per kg
|
Output Product
1 - 18kg
|
Output Product
2 - 22kg
|
Output
By-product -5kg Sales value
- 10/kg
|
Normal loss 8% =
4kg
scarp value $5/kg
|
Abnormal loss
- 1kg
|
Process 1 account
|
|||||||
kg
|
$/unit
|
Total $
|
kg
|
$/unit
|
Total $
|
||
Material
|
50
|
20
|
1000
|
Normal loss
|
4
|
5
|
20
|
Conversion
|
-50-
|
10
|
500
|
By-product
|
5
|
10
|
50
|
Abnormal loss
|
1
|
34.878*
|
35
|
||||
Product 1
|
18
|
34.878*
|
628
|
||||
Product 2
|
22
|
34.878*
|
767
|
||||
50 kg
|
30
|
1500
|
50
|
---
|
1500
|
||
Working 1:
Input
|
50kg
|
1500
|
Normal loss
|
(4kg)
|
(20)
|
By-product
|
(5kg)
|
(50)
|
Remaining (Normal production)
|
41
|
1430
|
Cost per unit for the remainder = 1430/41 = 34.878*
Note: Abnormal loss or gain is always valued at cost of
normal production
|
||
The costs apportion for product 1 and product 2 is done in
production unit basis.
No comments:
Post a Comment