Accounting

Method Of Costing By Products And Joint Products

METHOD OF COSTING BY PRODUCTS: The several accepted methods used in industry for costing by-products fall into two categories: (1) Specific costs are allocated tn the by-products for costing purposes. Any income resulting from the sale-of the by-product is credited either to income or to the main-product. For inventory accounting, some independent value may be assigned to the by-product. (Methods 1, 2, and 3 explained below are examples of category 1.)

(2) Some-portion of the joint cost is allocated to the by-product. Inventory costs are based on this allocated cost plus any subsequent processing costs (see Method 4). The method of costing by products which most commonly employed are :

METHOD OF COSTING BY PRODUCTS

Method 1. Revenues from sales of by-products are listed on the income statement as:
a. Other income,
b. Additional sales revenue.
c. A deduction from the cost of goods sold of the main product.
d. A deduction from total production costs of the main product.

Method 2. Revenues from sales of by-products less the cost of placing the by-products on the market (marketing and administrative expenses) and less any additional processing cost of the by-products are shown on the income statement in a manner similar to that indicated in Method 1.

Method 3. The replacement cost method.

Method 4. The market value (reversal cost) method.

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