I can be further processed into cue 34 different other products
that are more profitable or make more money than the previous product
by itself and of course we make more profit or money
make sense to bring across is that now this happens pretty frequently and
processing and refining
businesses you might have an example like where we have
oil barrels of crude oil like me further processed
into things like kerosene or our gasoline
or diesel fuel and if all abuse make more income than
been awhile by its all they may want to further processed them so they can sell
these
separate joint products by themselves so we're going to be looking at
these joint products any cost
used to actually create Bama and how we're going to allocates
the cost between these new products using
one of three different methods in the one will be going to run this
presentation at the school
units method so let's go ahead and actually bring up
an illustration for your and
I have an example I'll 10 we're we're taking a raw material course in
splitting it
in T-two chemical so course this is called
the split-off point the circle
where we actually take the raw material and
creed two or three or four different on joint products but in this case ago it
created to
and the costs associated
with creating the two different chemicals are called joint
cost include things like materials
or labor or overhead
the terms that you're kinda you know you're with managerial accounting at the
moment
and we're going to take these costs in allocate them between chemical A&B and
we're going to use the method
or that's because if we just had one chronic that we've crossed thats
into a new chemical agree just created wyman
went right by itself can be had one hundred thousand dollars to you
across a sentence you chemical a would be easy to just say
well the crossing costs would be entirely allocated to you
this one new chemical but if we have two or three or four different products how
are we going to you
heard when our kid well we're gonna need wannabes
not bad so we can your use the physical map it
or net realizable value map it or the sales method which will see and its
second
and of course the points on why we
our keep is he is joined cost
are because we're trying to determine inventory
valuation wanna to you think this is the first landed revaluation
because if we have a hundred thousand dollars that's being allocated
some to chemical and something chemical be we're gonna have more cost that goes
into these products and when
the product cost more you're actually creates
were actually raising devalue are
our inventory or are assets so however much maybe
maybe sixty thousand goes into you chemical a
me forty thousand goes into chemical be well
be inventory value chemical a is gonna rise by sixty thousand more
and the value chemical be all rights by forty thousand workers be
our kid back costs in the second reason we
allocate costs is for income
the termination because the only reason
what this means is we only split a raw material it's two different products
because
each one is profitable and it each one was a crop building to be when splitter
rain so basically what we need to do is we need to make sure that we
allocate the joint costs in a fair way so that
each each product yields
crop it and if they don't we're gonna have to use a different method
ritual soon find out so let's go ahead and do the physical units not that
see what happens someone to lead that later
close at this one and let's bring up the
question actually should say that the three methods the course
sales not the net realizable value and the fiscal year and smothered which were
going over right now
and one important thing for restoring the question is that's
these to chemicals or whenever you that is going it's not that you gonna make
sure
that units that they ran are
measured in the same unit so what levi's
both these chemicals are measured in leaders so that means we can't use this
map it so if we had
maybe raw material Lake an animal do you can
processed into I hamburgers &
stake sir I don't know they have to be in kilograms each
or they have to be in pounds each so
you gotta make sure that they are in the same units to use this method
so let's go and use this map it's unfair broken leaders we can use that as green
it's not that
begins with the raw material into chemical AMD which we've seen the joint
cost is one hundred thousand dollars or join cost
is one hundred thousand dollars which means
one hundred thousand dollars to produce these two units production is 100%
doesn't have a fifty thousand
leaders be and we can solve them for ninety-some the leader obey
and sixty sends all reader gorby how are we going to do so.
we need to allocate a hundred thousand dollars between these two
so first of all we're gonna take that's a cool one hundred thousand
leaders and that is for a
and we're going to have a 50 para their leader is
are be went to be creates
these her wanna be actually separate them into these two different products
so we'll have a hundred and fifty thousand liters
a book now the way we're actually going to separate the 100 does not seem to
product this together percents
so that we can allocate a percent to chemical way in chemical be
so we're going to you do something called her rates
this one hundred thousand dollars so we're gonna take 100,000
the leaders divided by the total 150
ever gonna take being witches 50,000 leaders
divided by the total leaders mean that way
each will give us a percent so chemical a will take
that will be 66.67 percent
while chemical be will be
.33 her son so
.33 a better doesn't is gonna go to chemical be
and be offset for chemical a so it's actually do this
and cut what's gonna happen is agree we both played of course 66.67
is going to be sixty 6 hours then
and sixty seven dollars
up costs that's going to go
into you chemical and a while
,000 333 dollars
is going to go into you be cost
be so what has just happened as be increase the value
are the inventory a a by 66,000 667
in the value of be by thirty 3300
and 30 360 now we actually look
and how much he may take so what's let's get ready to spur rated structure above
the of now it's a
we know that they make I R ninety cents a leader and we made a hundred thousand
so
chemical a is going to yield 900 thousand dollars the revenue
while be costs is going to be
the cost is going to be 66,000 667
not going to be for product a in our product be
is going to have sixty-some the leader
at fifty thousand meters i think thats
,000 dollars in revenue
and bout will be 33 1300
already allocated
expand third need to join cost expense allocated to be
so in total what is that going to yield
in her of its preacher is well for a that'll be a boat's
hours then
what's in any better than minus 66 667
doesn't 333 need
which is fine and the other one what actually yield
a a loss
,000 333 but this can't be because
if for sporting moments you can claim be they each have to make a profit
so obviously this map it is not the right one to use because we need
to make sure that's they each yield
a crop it so this isn't a good way to actually allocate because perhaps use
one up its your
different methods and we'll go over this exact same example
but will do it for the sales not that and the net realizable value not that
make sure bats product AM proud Bieber
yield a certain amount of profit because they have to yield
crop it so that is how we do that this girl you know it's not good
we'll talk with the their necks not the cursive sales not that in the next article
ok we understand it and I'll see you next on. Thanks for visit..
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