ExpertMedium2 marksMultiple Choice
ACCA · Question 15 · Syllabus C: Cost accounting techniques
A rare-earth mineral refinery processes raw ore into two main joint products (Neodymium and Praseodymium) and one by-product (Slag).
Which of the following are acceptable accounting treatments for the by-product? (Select all that apply)
A rare-earth mineral refinery processes raw ore into two main joint products (Neodymium and Praseodymium) and one by-product (Slag).
Which of the following are acceptable accounting treatments for the by-product? (Select all that apply)
Answer options:
A.
Deduct the net realizable value of the by-product from the total joint process costs before allocating costs to main products.
B.
Treat the sales value of the by-product as miscellaneous income in the income statement.
C.
Allocate a full share of joint process costs to the by-product based on its physical weight.
D.
Allocate joint process costs to the by-product based on its sales value at split-off.
How to approach this question
Remember that by-products are incidental and have minor value. They do not receive a share of joint costs. Their value is either deducted from joint costs or treated as other income.
Full Answer
By-products have relatively low sales value compared to joint products. Therefore, they are not allocated a share of the joint production costs. Instead, the standard accounting treatments are either to deduct the Net Realizable Value (NRV) of the by-product from the total joint costs (reducing the cost of main products) or to recognize the revenue from the by-product as miscellaneous/other income.
Common mistakes
Treating a by-product like a joint product and allocating costs to it.
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