Joint Product Costs and the Splitoff Point

This video introduces the concept of joint costs and the splitoff point in managerial accounting. Joint products refer to two or more products that are produced from the same input. The point at which the raw product is transformed into multiple joint products is known as the splitoff point. (Note: a product with a relatively low sales value may be referred to as a by-product rather than a joint product) Costs incurred prior to the splitoff point are known as joint costs. Joint costs are commonly allocated to the individual joint products (using the relative sales method, physical unit method, or Net Realizeable Value method) for purposes of computing Cost of Goods Sold. However, joint costs are not relevant when deciding what to do with a product after the splitoff point has been reached (for example, in a sell-or-process further decision). After the splitoff point has been reached, joint costs have already been incurred-- thus, managers should only consider the incremental costs and revenues.
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