Calculation of Production Costs for By-Products

Table of contents :

  • Calculation of Production Costs for By-Products
  • Calculation of Production Costs for Combined Products
  • Determination of Production Cost per Unit
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Calculation of Production Costs for By-Products

An acceptable method of calculating the cost of by-product which falls into 2 categories. in category 1, the combined costs of production cannot be allocated to by-products.

In this category, there are 2 ordinances. The income that will be generated from the sale of this by-product can be credited to the expense of the main product.

This method is also distinguished by its treatment of gross byproducts and is called the method:

  1. Road Alternatively, the cost of the by-product after the cutoff point is offset by the revenue from that product.

This model is distinguished by its treatment of net income from by-products and is referred to as method 2.In method 1, the gross income from the sale of by-products can be displayed in the income statement as one of these categories:

  1. Other income
  2. Additional sales revenue
  3. Reduction of the cost of goods sold for the main product.

Major reduction in production costs In method 2, the net income from by-products, (the income from selling by-products

This will be reduced by administrative or marketing costs to be able to market the by-product,

This is then deducted again by further processing fees after the cut-off point) is shown on the income statement as one of the four categories for method 1 as mentioned above.

In the second category for calculating by-product costs, most of the combined costs are allocated to these products.

Allocation of the combined costs like this is almost the same as the treatment of a combined product.

The value of this inventory will be based on the amount of the combined allocated costs plus future processing costs after the cutoff point.

 

Also Read:   Product Cost Classification

 

Within this category, there are 2 divided methods that are used. Method 3 is a method of the cost of a replacement,

then while the fourth method is the market value method, or what is also known as the cost cancellation or reversal method.

Calculation of Production Costs for Combined Products

Joint products or often called joint products are produced simultaneously through a process or a series of processes in general,

where each product that has been produced has more than the nominal value in a form in accordance with the results of said processing.

An increase in the output of one product, cannot be avoided, will cause a large increase in the quantity of other products or products, and vice versa, although not necessarily in the same proportion.

The split-off point is described as the point at which the products can be separated as individual units. Before that point, the products are still in a homogeneous whole.

Determination of Production Cost per Unit

The presentation of the calculation of the unit production cost and also the calculation of the cost of goods manufactured is completed or also the product in the production cost report which is divided into 3 parts, namely:

  1. Production data which contains a number of products in process at the beginning of the period, the number of products that can be processed during a certain period, the number of finished products transferred to the following departments as well as the warehouse, the number of products that are still in process at the end of the period and the number of products that can be lost, defective or damaged in production process.
  2. Shows the production costs that will occur in a particular department and also the cumulative production costs that will be incurred to a certain department (department after the first department) in section 2 is presented the total cost and unit cost of each element of production costs
  3. Shows the computed cost of goods manufactured completed that is transferred.

 

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