Hello Odno,
Gross margin will
increase by $ 1 Consider the followings: Sales = $20 , COGS = $10 , Sell & Admin exp. = $ 2
By-Product method: Gross profit = $20 - ($10 - $3) =
$13 and Net profit = $13 - $2 = $11
Joint product method: Gross profit = ($20 + $4) - $10 =
$14 and Net profit = $14 - $2 - $1 = $11
As described, the joint product method will treat May's as normal production item by adding its sales to revenue and deducting its costs as direct & indirect
in our case here the only cost for May is $1 selling exp. (Indirect) which should be deducted after Gross Profit line item.
Kind regards
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Samer Ahmad, FMVA, SCA
Kuwait
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Original Message:
Sent: 03-02-2020 12:14 PM
From: Odongerel Galdan
Subject: Part 1: Joint Product Costing
Hi all,
Can someone please explain to me the following example?
Kode Co. manufactures a major product that gives rise to a by-product called May. May's only separable cost is a $1 selling cost when a unit is sold for $4. Kode accounts for May's sales by deducting the $3 net amount from the cost of goods sold of the major product. There are no inventories. If Kode were to change its method of accounting for May from a by-product to a joint product, what would be the effect on Kode's overall gross margin?
Many thanks in advance!
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Odno Galdan
United States
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