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It is the cost accountant's job to trace these costs back to a certain product or process (cost object) during production. Some costs cannot be traced back to a single cost object. Some costs benefit more than one product or process in the manufacturing process. These costs are called joint costs. [1]
In microeconomics, joint product pricing is the firm's problem of choosing prices for joint products, which are two or more products produced from the same process or operation, each considered to be of value. Pricing for joint products is more complex than pricing for a single product. To begin with, there are two demand curves.
In economics, joint product is a product that results jointly with other products from processing a common input; this common process is also called joint production. [1] A joint product can be the output of a process with fixed or variable proportions.
A split-off point is the point of production at which joint products appear in the production process. [1]For example, when a company was preparing its financial statements, it realized that because it showed no profit or loss, it was unattractive to investors.
In the context of production, a by-product is the "output from a joint production process that is minor in quantity and/or net realizable value (NRV) when compared with the main products". [2] Because they are deemed to have no influence on reported financial results, by-products do not receive allocations of joint costs.
Unfortunately, standard cost accounting methods developed about 100 years ago, when labor comprised the most important cost in manufactured goods. Standard methods continue to emphasize labor efficiency even though that resource now constitutes a (very) small part of cost in most cases.
Labor costs are direct costs, that is, they can be identified among the total cost and assigned to a certain cost objective. [1] Labor costs are defined by categories (e.g. service labor or manufacturing labor), the attribution of a labor rate for each category, and a certain number of labor hours. [1]
In either case, once overhead/burden is added, the total cost for the job can be determined. If the accountant is using a general ledger accounting system, which lacks true job costing functionality, the costs must be manually transferred out of Work in Process to Finished Goods (Cost of Goods Sold for service industries). Of course, in the ...