CA Intermediate · Cost and Management Accounting · Joint Products and By Products
A by-product of a dairy firm is sold for ₹45,000. Its selling and distribution expenses are ₹5,000. The firm follows the practice of treating by-product income as other income, not as a credit to the joint process. How does this treatment affect the cost of the main products?
The cost of the main products is not reduced. Under this method the by-product income is taken straight to the profit and loss account as other income, rather than being credited to the joint process account, so main product costs stay unchanged.
- AThe cost of the main products is reduced by ₹40,000
- BThe cost of the main products is reduced by ₹45,000
- CThe cost of the main products is not reduced; the income appears separately in the profit and loss accountCorrect
- DThe cost of the main products is increased by ₹5,000
Explanation
When by-product sales are treated as other income, nothing is credited to the joint process, so the cost of the main products remains unchanged. The income (net or gross as policy dictates) is shown in the profit and loss account. Reducing cost by ₹40,000 or ₹45,000 reflects the alternative credit-to-process method.
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