ACCA Applied Knowledge · Management Accounting · Cost accounting methods
Which statement about the treatment of by-products in process costing is correct when by-product income is treated as a reduction of the joint process costs?
The by-product income reduces the joint costs that are apportioned to the main joint products. It is credited to the process account, so the main products carry a lower net cost and the by-product itself receives no share of joint costs.
- AThe income reduces the cost to be apportioned to the main joint productsCorrect
- BThe income is shown as other income in the statement of profit or loss only
- CThe by-product is apportioned a share of joint costs using sales value
- DThe income increases the cost per unit of the main products
Explanation
Where by-product net income is credited to the process account, the net cost to be shared among the joint products falls. Hence cost per unit of the main products is lower, not higher. By-products are not apportioned joint costs under this approach.
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