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CA Intermediate · Cost and Management Accounting · Joint Products and By Products

In a chemical plant, a single process yields joint products P and Q. At the split-off point, the joint cost is apportioned using the net realisable value (NRV) at split-off method. Which of the following is the correct way to treat a joint product that is processed further after split-off?

Under the NRV method at split-off, a product processed further is valued at its final selling price minus the further processing cost and any selling cost. This gives a hypothetical value at the split-off point, which is used as the base for apportioning joint costs.

  1. AIts further processing cost is added to the joint cost before apportionment
  2. BIts NRV at split-off is the final selling price less further processing cost and any selling costCorrect
  3. CIts NRV at split-off is taken as the final selling price without any deduction
  4. DIts further processing cost is apportioned among all joint products in the sales ratio

Explanation

Under the NRV method, the value used to apportion joint cost is the final selling price less the additional processing costs (and selling costs) incurred after split-off. Adding further processing cost to the joint cost or sharing it among all products is wrong because those costs belong only to the product processed further.

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