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Process costing

9.3 Joint costs

Joint process costs occur before the split-off point. The joint costs need to be
apportioned between the joint products at the split-off point to obtain the cost of each
of the products in order to value closing inventory and cost of sales.

The basis of apportionment of joint costs to products is usually one of the following:

 sales value of production (also known as market value)

 production units

 net realisable value.

Clare plc produces two products, X and Y, in a single joint process.

Last month the joint costs were $50,000.

5,000 units of Product X and 7,500 units of Product Y were produced.

Additional processing costs were $10,000 for Product X and $5,000 for
Product Y.

Product X sells for $15, and Product Y sells for $8.

The Market value method of apportioning joint costs:

Calculate the total market value:

X: 5,000 × $15 = $75,000

Y: 7,500 × $8 = $60,000

Total market value = $135,000

Calculate the joint cost allocation:

X: $50,000 ÷ 135,000 × $75,000 = $27,778

Y: $50,000 ÷ 135,000 × $60,000 = $22,222

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