What is a split-off point example?
What is a split-off point example?
A split-off point is the point of production at which joint products appear in the production process. 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.
What is sales value method?
The relative sales value method is a technique used to allocate joint costs based on the prices at which products will be sold. For example, a production process incurs $100 of costs in order to create two products, one of which (Product A) will sell for $400 and the other (Product B) for $100.
What is the split-off point in accounting?
A split-off point is the location in a production process where jointly manufactured products are henceforth manufactured separately; thus, their costs can be identified individually after the split-off point. Prior to the split-off point, production costs are allocated to jointly manufactured products.
How do you calculate market price in split off?
Market value is also a relatively straightforward method of common cost apportionment when the joint products can be sold at the split-off point. The output of each product is multiplied by their selling price at the split-off point to provide the respective weighting to be applied to the common costs.
Which product or products should be sold at the split-off point?
Answer: A product should be sold at the split-off point if there is not any incremental profit from processing the product further. As long as the process as a whole is profitable, it is irrelevant if an individual product is not profitable.
What do you mean by split-off point and post separation cost?
These are the costs incurred before so called split-off point (point of separation). Costs incurred after the split-off point (so called post-separation costs) can be easily identified with individual products, but joint costs need to be apportioned.
What is the difference between spin off and split off?
The spin-off is a divestment strategy in which the parent company is divided into a new subsidiary which is independent in legal matters from the parent company. Split-off, on the other hand, is a restructuring strategy in which the shareholders of the new subsidiary are the former shareholders in the parent company.
What is market value method in cost accounting?
Under market or sales value method, the joint cost incurred in a joint production process is allocated to different joint products on the basis of their market or sales value.
How do we decide whether a product ought to be sold at the split-off point or processed further?
There are two criteria you use to justify further processing (and more costs): If the product has a sales value at splitoff, maybe it’s better to sell it. If the incremental revenue from further processing is greater than the incremental cost of further processing, maybe it’s better to continue processing.
