JOINT PRODUCT AND BYPRODUCT COSTING

JOINT PRODUCTS
Joint products are two or more products which are output from the same processing operation,
but which are indistinguishable from each other up to their point of separation.
BY PRODUCTS
By products are supplementary or secondary products (arising as a result of a process whose
value are small relative to that of the main product. Example include a sawdust in a timber
industry, cut off paper in a printing press and also pieces of clothes used to make board duster in
textile industry.
DIFFERENCE BETWEEN JOINT AND BYPRODUCTS
Joint product is regarded as an important saleable item and so it should be accounted for
separately and its profitability assessed. Byproducts are not an important saleable item and
whatever revenue it earns is a bonus for the organisation.
PROBLEMS IN ACCOUNTING FOR JOINT PRODUCT
Split off point or separation point is that point at which joint products and byproducts can be
identified separately. The cost incurred up to this point of separation is called a Common Cost or
Joint Cost.
The problem here is:
(a) How to share the common cost between products in order to value cost of sales and
closing inventory
(b) Whether to sell the joint product at one stage of processing or to process it further and
sell at a later stage. This decision is centered on profitability

DEALING WITH COMMON OR JOINT COST

There are two main methods of apportioning joint or common cost to products. They are:
(a) The physical measurement method: under this method, the common cost is
apportioned to the joint products on the basis of the proportion that the output bears
by weight or volume to the total output.

(b) The sales value at split off point method: this is the most widely used method of
apportioning joint cost. It assumes that all products achieve the same profit margin. It
apportions cost based on the proportion of sales value to be generated by each product
to the total sales value. Note that the sales value is based on the quantity produce
and not quantity sold
Illustration 1
Two products A and B are produced incurring a common cost to the point of separation of
N3,000. The output of each product is 600 tons and 1,200 tons respectively. Product A sells for
N4 per ton and product B sells for N6 per ton. Share the common cost using:
(a) The physical measurement
(b) The sales value at split off measurement

Solution to Illustration 1
Products Physical unit Selling Price (N) Sales value (N)
A 600 4 2,400
B 1,200 6 7,200
Total 1,800 9,600

Share of common cost N3,000 using:

a) Physical measurement
Products Share of common cost
A = 600/1,800 x N3,000 N1,000
B = 1,200/1,800 x N3,000 N2,000
Total N3,000

b) The sales value at split off measurement

Products Share of common cost
A = N2,400/N9,600 x N3,000 N750
B = N7,200/N9,600 x N3,000 N2,250
Total N3,000

Tutorial Question
In process costing, a joint product is
(a) A product which is produced simultaneously with other products but which is of less
value than at least one of the other products
(b) A product which is produced simultaneously with other products and is of
similar value to at least one of the other products
(c) A product which is produced simultaneously with other products but which is of
greater value than any of the other products
(d) A product produced jointly with another organisation
JOINT PRODUCTS IN PROCESS ACCOUNTS
This example illustrates how joint products are incorporated into process accounts
Illustration 2
Three joint products are manufactured in a common process, which consists of two consecutive
stages. Output from process 1 is transferred to process 2, and output from process 2 consists of
the three joint products. Ade, Mary and Olu. All joint products are sold as soon as they are
produced.
Data for period 2 of 2019 are as follows:
Process 1 Process 2
Opening and closing inventory none none
Direct material (30,000 units @2 per unit) N60,000 -----
Conversion costs N76,500 N226,200
Normal loss 10% 10%
Scrap value of losses N0.50 per unit N2 per unit
Output 26,000 units 10,000 units of Ade
7,000 units of Mary
6,000 units of Olu

Selling prices are N18 per unit of Ade, N20per unit of Mary and N30 per unit of Olu.
Required:
(a) Prepare Process 1 account
(b) Prepare Process 2 account using the sales value method of apportionment
(c) Prepare a profit statement for the joint products.

Solution to Illustration 2
Step 1: Determine output and losses
Material input 30,000
Normal loss (10%) (3,000)
Expected units 27,000*
Actual Units (26,000)
Abnormal loss 1,000

Step 2: Determine cost/ unit

N
Scrap value: Normal loss 3,000 x N0.5 = 1,500*
Abnormal loss 1,000 x N0.5 = 500
2,000

Cost/unit = Total Cost – Scrap Value of Normal loss

Expected units

= N60,000 + N76,500 – N1,500 = N135,000

27,000 27,000 = N5/unit
Step 3: Determine Total cost of output & Losses
N
Actual output 26,000 x N5 = 130,000
Normal loss 3,000 x N0.5 = 1,500
Abnormal loss 1,000 x N5 = 5,000
30,000 136,500

Step 4: Prepare the Process Account

Process Account
Particulars Units N Particulars Units N
Material input 30,000 60,000 Output to Process 2 26,000 130,000
Conversion cost 76,500 Normal loss (S/value a/c) 3,000 1,500
_____ ______ Abnormal loss 1,000 5,000
30,000 136,500 30,000 136,500

PROCESS 2
Step 1: Determine output and losses
Material input from Process 1 26,000
Normal loss (10%) (2,600)
Expected units 23,400*
Actual Units (23,000)
Abnormal loss 400

Step 2: Determine cost/ unit

N
Scrap value: Normal loss 2,600 x N2 = 5,200*
Abnormal loss 400 x N2 = 800
6,000

Cost/unit = Total Cost – Scrap Value of Normal loss

Expected units

= N130,000 + N226,200 – N5,200 = N351,000

23,400 23,400 = N15/unit

Step 3: Determine Total cost of output & Losses

N
Actual output 23,000 x N15 = 345,000 (Common Cost for Joint Product)
Normal loss 2,600 x N2 = 5,200
Abnormal loss 400 x N15 = 6,000
26,000 356,200
Step 3b:
Share of common cost using sales value method
Products Physical Selling Sales Share of common cost
unit Price (N) value (N) (N)
Ade 10,000 18 180,000 180/500 x N345,000 124,200
Mary 7,000 20 140,000 140/500 x N345,000 96,600
Olu 6,000 30 180,000 180/500 x N345,000 124,200
Total 23,000 500,000 345,000

Step 4: Prepare the Process Account

Process Account
Particulars Units N Particulars Units N
Material input 26,000 130,000 Output to: Ade 10,000 124,200
Conversion cost 226,200 Mary 7,000 96,600
Olu 6,000 124,200
Normal loss 2,600 5,200
_____ ______ Abnormal loss 400 6,000
26,000 356,200 26,000 356,200

Profit Statement for the period

N
N
Sales: Ade 180,000
Mary 140,000
Olu 180,000
500,000
Less Cost of goods sold:
Ade 124,200
Mary 96,600
Olu 124,200
345,000
Gross Profits 155,000
Less other expenses:
5,200
Abnormal loss (6,000 – 800)
149,800
Net profit

Class work
A company operates a process costing system, the final output from which is three different
products: Dunga, Yatti and koko. Details of the three products for March are as follows:
Dunga Yatti Koko
Selling price per unit N25 N18 N32
Output for March (units) 6,000 10,000 4,000
22,000 units of material were input to the process, costing N242,000. Conversion costs were
N121,000. No losses were expected and there were no opening or closing inventories.
Required:
Using the unit basis of apportioning joint costs, what was the profit or loss on sales of Yatti for
March?
(a) (N1,500) (b) N30,000 (c) N50,306 (d) N15,000

Solution to Class work

Material input 22,000
Normal loss (0)
Expected units 22,000
Actual units (20,000)
Abnormal loss 2,000

N363,000/22,000 units = N16.5

Revenue from sales of Yatti = 10,000 units x 18/unit = 180,000
Less cost of production 10,000 units x 16.5 = 16,500
Profit = 15,000

ACCOUNTING FOR BYPRODUCTS

There are four methods of accounting for by products but the most commonly used method is to
deduct the net realizable value of the bye product from the cost of the main product. The four
methods are as follows;
1. Add the income from by-product to the sales of the main product
2. Treat income of byproduct as a separate source of income
3. Deduct sales value of byproduct from the cost of production
4. Deduct net realisable value of byproduct from the cost of production of the main
product.

Illustration 3
During November 2019, Ade Company recorded the following results
Opening inventory main product P, nil
Byproduct Z, nil
Cost of production N120,000

Sales of the main product amounted to 90% of output during the period, and 10% of production
was held as closing inventory at 30th November.
Sales revenue from the main product during November 2019 was N150,000.
A by-product Z is produced, and output had a net sales value of N1,000 of this output, N700 was
sold during the month, and N300 was still in inventory at 30th November.

Required:
Calculate the profit for November using the four methods of accounting for byproducts.
Solution to Illustration 3
Accounting for Byproducts using the following methods:
1. Add the income from by-product to the sales of the main product
N N
Sales: Product P 150,000
Product Z 700
150,700
Less cost of sales (90% of N120,000) 108,000
Gross Profits 42,700

Cost of production 120,000

Closing inventory (10% of COP) (12,000)
Cost of sales 108,000

2. Treat income of byproduct as a separate source of income

N
Sales: Product P 150,000
Less cost of sales (90% of N120,000) 108,000
Gross Profits 42,000
Add other income:
Product Z 700
Net income 42,700

3. Deduct sales value of by-product from the cost of production

N N
Sales: Product P 150,000
Less cost of sales:
Production (90% of N120,000) 108,000
Sales value of product Z (1,000)
Cost of sales 107,000
Gross Profits 43,000
 4. Deduct net realisable value of by-product from the cost of production of the
main product.
N N
Sales: Product P 150,000
Less cost of sales:
Production (90% of N120,000) 108,000
Sales value of product Z (1,000)
Cost of sales 107,000
Gross Profits 43,000

Illustration 4
Mc Hunter manufactures two joint products, J and K, in a common process. A byproduct X is
also produced. Data for the month of December 2019 were as follows:
Opening inventory nil
Costs of processing: direct materials N25,500
Direct labour N10,000

Production overheads are absorbed at the rate of 300% of direct labour cost.
Production units Sales units
Output and sales consisted of: Product J 8,000 7,000
Product K 8,000 6,000
By-product X 1,000 1,000

The sales value per unit of J, K and X is N4, N6 and N0.50 respectively. The saleable value of
the byproduct is deducted from process costs before apportioning costs to each joint product.
Costs of the common processing are apportioned between product J and K on the basis of sales
value of production.
What are the individual profits for December 2019?
Product J Product K
N N
A. 5,250 6,750
B. 6,750 5,250
C. 22,750 29,250
D. 29,250 22,750
Solution to Illustration 4
Revenue from byproduct = 1,000 units x N0.50 = N500

Total cost of production N

direct materials 25,500
Direct labour 10,000
Production overheads are absorbed at the rate 30,000
of 300% of direct labour cost.
Total cost 65,500

Cost to be apportioned = N65,500 – N500 = N65,000

Cost apportionment using sales value at split off stage

Product Quantity Selling Sales Value Apportioned cost
Produced Price N N N
J 8,000 4 32,000 32/80 x 65,000 = 26,000
K 8,000 6 48,000 48/80 x 65,000 = 39,000
80,000 65,000

Determination of profitability of each product

Product Quantity Selling Sales Cost of Sales Profit
Sold Price N Value N N
J 7,000 4 28,000 N26,000/8,000 x 7,000 = 22,750 5,250
K 6,000 6 36,000 N39,000/8,000 x 6,000 = 29,250 6,750
Option A