Joint Product by Product

GROUP 1
JOINT PRODUCT
AND BY PRODUCTS
PRESENTED BY
1002,1003,1004,1008,1010,1011, 1013
INTRODUCTIO
N
Two or more products of equal importance, produced, simultaneously from the same process,
with each having a significant relative sale value are known as joint products. For example, in
the oil industry, gasoline, fuel oil, lubricants, paraffin, coal tar, asphalt and kerosene are all
produced from crude petroleum. These are known as joint products.
On the other hand, By-products emerge as a result of processing operation of another product or
they are produced from the scrap or waste of materials of a process. A by-product is a secondary
or subsidiary product which emanates as a result of manufacture of the main product. Examples
of by-products are molasses in the manufacture of sugar.
DIFFERENCE
S BASIS JOINT PRODUCT BY PRODUCT
When the production of two or more products of The term by-product means a product which is
MEANING similar value, are made together with same input incidentally produced, during the processing
and process, is called joint product. operation of another product.
Economic value of by-product is lower than

ECONOMIC VALUE Joint products have same economic value
the main product.
PRODUCTION Consciously Consequently
INPUT Raw material Waste or scrap of the main product.
FURTHER Required to turn the joint products into finished

Not required.
PROCESSING product
ADVANTAGE
S
The advantages of joint product and by product costing are:
COMPREHENSIVE COST ALLOCATION:

By combining both methods, companies can ensure that all costs incurred in the production
process are allocated appropriately.
ENHANCED PROFITABILITY ANALYSIS:

Combining joint product and by-product costing helps to assess profitability more accurately.
SUPPORTS SUSTAINABILITY INITIATIVES:

Identification of opportunities for waste reduction and resource optimization aligns with the
sustainability initiatives.
DISADVANTA
GES
The disadvantages of Joint Product Costing and By-Product Costing are:
RELEVANCE ISSUE:
Joint and By-product costing may not provide relevant information for decision making. Joint or by-
product costing methods often focus on historical or sunk costs that have already been incurred and
cannot be changed by any decision.
OPPORTUNITY COSTS:
Joint product and by-product costing may ignore the opportunity costs of using common input or
process for alternative purposes. They may affect the optimal production and sales mix of the
products.
ALLOCATION ISSUE:
There are various methods of allocating these costs, however none of these methods are perfect and
they may result in arbitrary or misleading cost allocations.
ACCOUNTING
TREATMENT OF
JOINT PRODUCT:
Joint process costs occur before the split-off point. They
are sometimes called pre-separation costs or common
costs.
The joint costs need to be apportioned between the joint
products at the split-off point to obtain the cost of each
of the products in order to value closing inventory and
cost of sales.
There are several methods that we can use to allocate costs up to the split-off point. These are:
PHYSICAL UNIT METHOD:

This method allocate joint costs on the basis of some physical unit which may be expressed in such terms
as weight, volume, atomic weight and heat units.
NET VALUE METHOD:

Different factors such as competition, govemment restrictions, customers habit, etc. are influencing price
and profit of joint products. When the percentage of profit varies widely from product to product, the Net
Value Method is usually used.
SALES VALUE AT SPLIT-OFF METHOD:
The Sales Value at Split-off Method is based on the relative sales value of each joint product at the split-off
point. This method is also called the Sales Value Method. It should be noted that the sales value is the
selling price multiplied by the number of units produced, not the actual number of units sold.
NET VALUE METHOD:

After further processing all joint products may not earn same rate of profit. Different factors (such as
competition, govemment restrictions, customers habit, etc. are influencing price and profit of joint products.
When the percentage of profit varies widely from product to product, the Net Value Method is usually used.
This method is very similar to the Net Realisable Value (NRV) method. Under this method,
Net Value = Sales Value - (Estimated profit + Further Processing Cost + Selling and distribution
cost)
ACCOUNTING
TREATMENT OF
BY-PRODUCTS:
By-products not Requiring Further Processing:
The sale proceeds from the sale of by-product or estimated sales value of the by-
product at split-off point are deducted from the joint process costs. The remaining
joint costs are charged to the main product or joint products.
By-products Requiring Further Processing:

Here, the additional cost of further processing is deducted from the sale proceeds
of the by-product. The net sales value or scrap value of the by-product is
deducted from the joint process costs. The remaining joint process costs are
charged to the main product / joint products.
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Joint Product by Product

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GROUP 1

Economic value of by-product is lower than

PRODUCTION Consciously Consequently

INPUT Raw material Waste or scrap of the main product.

FURTHER Required to turn the joint products into finished

COMPREHENSIVE COST ALLOCATION:

ENHANCED PROFITABILITY ANALYSIS:

SUPPORTS SUSTAINABILITY INITIATIVES:

PHYSICAL UNIT METHOD:

NET VALUE METHOD:

NET VALUE METHOD:

By-products Requiring Further Processing:

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