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Process Costing – Joint Products – ACCA Management Accounting (MA)

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  2. Excuse me, sir, please can you confirm in the example 3, the profit for product A is selling price ($8.4)less joint cost($3,16) and further processing cost($4.8),which is $0.44.And the same to B is $4.5-$4.22=$0.28.

    Thank you so much for your time.

    • But I explain this in the lecture!

      It is because X is a by-product. We take the total joint cost less the proceeds from the by-product and divide by the production (not the input!) of the two joint products.

    • I have no idea what ‘9’ you are referring to.

      If you are meaning the $9,000 then it is the total sales value of the units actually produced. I show the workings in the lecture and the workings are printed in the lecture notes as well.

  7. Hello there

    I was expecting the combined profit of both methods of the product unit and market value would equal each other at the least. However it turns out if we use the product units methods, the total combined profit ends up higher (2.6-0.4 = $2.2) compared to market value profit (1+ 0.4 = $1.4) from your workings.

    Also, I would like to ask – what did you mean by when you said “There is no market value when it leaves the joint process” @ around 19:40 onwards. I did not understand this statement.

      • Greetings. I meant to ask why the final profit per unit using physical unit basis ($2-$0.4 = $2/kg) differs from the profit per unit calculated using market value basis ($1+ $0.4 = $1.4/kg) . There is a difference of $0.6 profit gap between the two methods. Is this not a flaw, and detrimental to decision making process ?

      • In the end, I was thinking it might also affect the FA department, affecting lets say the overall dividends payable to the shareholders, due to the $0.6 profit gap between the two methods. You feedback will be appreciated.

      • No it is not a flaw at all. It is the total profit that is relevant and this will be the same whatever the method if there is no inventory. It will result in different inventory values and this will affect the profit in the short term, but in the long term the total profits will be the same.
        It is the total profit that determines the dividends. There is no other decision involved given that by the very nature of joint products they either produce both products or they produce neither – they cannot produce one without the other.

  8. Excuse me, Sir,

    In example 3.
    The answer for cost per kg of A is $3.16 or $7.96.

    How can we distinguish the answer will be $3.16 or $7.96 based on only cost per kg according to the question?

  9. If we apportion to sales value. Do we use the production units figure or sold units figure. I am confused as I assumed it would be sold
    Unit. But on the revision tool kit I have one question it uses the production unit to apportion the joint cost. Would really appreciate your explanation on why it would be used. Many thanks in advance.

    • We use the selling price of the units produced (I do stress this in my lecture). The reason is that ultimately all of the production will be sold – whether it is sold in the current period or remains in inventory to be sold in the following period.

  10. 1) why you multiply 1000 and 2000 kg with their selling price?
    you can direct do this: 1000 * 7200/3000 to get the share of product A & B.
    2) can you explain again why market value basis is not using instead of net realizable value
    however the question is same as eg. 2, only further process cost is given extra?
    3) if examiner ask the cost per kg so for product A & B the cost/kg is 3.16 and 2.02
    respectively or 7.96 and 4.22 respectively.
    4) there is no production and sales revenue method as in MA2?

    • 1. In example 2 we are apportioning the joint costs in proportion to the sales value of the production, because that is the method that the question asks to be used.
      2. In example 3 we need the value at the date the products leave the process, which is less than the final selling price because of the cost of further processing.
      3. The costs when leaving the process are 3.16 and 2.02. The final costs when ready for sale are 7.96 and 4.22. Exam questions will probably ask for the second, but it depends on the wording of the question.
      4. The methods are the same as those in MA2 – the unit cost approach is based on the production, the market vale approach is based on sales value.

  11. sir i am not refering to a textbook.. are your notes enough for me to pass in the managment accounting paper… also you are a really good teacher im planning to complete the enitre portion within 10 days

    • The notes and lectures together cover everything needed to be able to pass the exam well. However it is important that you buy a Revision Kit from one of the ACCA approved publishers because they contain lots of exam standard questions to practice (and practice is vital to passing the exam).

  12. I am doing the practices test of finding the cost of the value of the closing inventory of product X
    Total Joint costs $ 384,000
    Further processing cost (product H) $ 159,600
    Using the Joint cost apportioned to H = 228,000 sales / 640,000 total sales x cost $384000 = $136,800
    Total Product cost ($136,800 + 159,600) = $296,400
    ** Closing inventory values of H = 28,000 / 228,000 X 296,400 = $36,400
    My Question is where can i get this **28,000** from
    Really appreaciated if can get further helps from your side.

  13. Example 2
    During August, the following costs were incurred in a process:
    Materials (3,500 kg) $5,000
    Labour and overheads $2,300
    The production from the process was as follows:
    kg
    Product A 1,000 selling price $5 per kg
    Product B 2,000 selling price $2 per kg
    by-product X 500 scrap value $0.20 per kg
    Sales during the period were 800 kg of A and 1,500 kg of B.
    Calculate a cost per kg and profit per kg for A and B using the market value basis

    my question is does the during the period the sales made of any use in solving it or just an additional info that we wont use?

    • There is no need to type out the whole question – I obviously have a copy of the lecture notes myself 🙂

      The unit sales during the period are of no relevance in this question – we spread the joint costs over the sales value of the actual production. (The units are either then sold or are still in inventory at the end of the period).
      Even if (in the extreme) none of the units were sold during the period, we would still spread the joint costs in the same way – it would be needed for the valuation of the closing inventory.

      Exam questions are more than likely to give both the production and the sales units – in order to test that you know that it is the sales value of production and not of the sales. Many will use the actual sales and get it wrong (because that will be one of the choices of answers available 🙂 )

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