Joint and By Product – Concept & Problem – CA INTER / CMA / B.COM
Introduction to Joint Products and By products in Cost Accounting
Joint Products
If the simultaneously produced products have almost equal sales value and it is significant, then they are
known as joint products. For example, in the oil industry, crude oil is processed through fractional
distillation to produce jet fuel, petrol, diesel, kerosene, asphalt, paraffin, and lubricants, all of which
have almost equal sales value. If all the products produced at the split-off point have almost equal sales
value, then they are joint products.
By products
If one product is more valuable than the other, then the more valuable product is known as the main
product and the less valuable product will be the by-product. By products are produced incidentally
while manufacturing the main product. For example, a sugar factory’s primary product is sugar, but
molasses and bagasse are also produced as by products. By products are not intentionally produced, but
they cannot be avoided and have little commercial value.
Other examples of by products include furniture manufacturing, where leftover bits and pieces of wood
become waste and can be sold or thrown out, and making carrot juice at home, where the juice is the
main product and the leftover pulp becomes a by-product
Understanding Joint Products and By-products
Joint products are products that are produced simultaneously and have almost equal sales value, while
by-products are products that emerge incidentally while manufacturing other products and have a lower
value than the main products.
After the split-off point, different products are obtained, and they can be sold immediately or further
processed to make them more refined and valuable. The cost of further processing is incurred
separately, but the main problem is that the joint cost has been incurred jointly, and it is not known
exactly how much cost has been incurred for each product. Therefore, the joint cost needs to be
apportioned to the joint products to calculate profit and set selling prices.
Methods of Apportioning Joint Cost to Joint Products
Physical Measure Method
Average Unit Cost Method
Sales Value at Split-Off Point Method
Sales Value After Further Processing Method
Net Realizable Value
, These methods will be discussed in detail in the following sections.
1.Physical Unit Method
In our previous video, we covered the physical unit method for apportioning joint costs, which involved
taking the ratio of the output and apportioning the joint costs accordingly.
2.Average Unit Cost Method
The average unit cost method involves calculating the average cost per unit of output and apportioning
the joint costs accordingly. To calculate the average unit cost, divide the total joint cost by the total
output at the split-off point. This will give you the cost per unit, which you can then multiply by the units
of each product to determine the apportioned joint costs for each product.
This method assumes that the units produced are of standard quality and measurable in the same units.
All joint products will have a uniform cost per unit when this method is applied.
However, this method cannot be used when the units are not comparable, such as when products are
measured in different units.
Illustration
Let’s take a simple problem as an example. Given production data for products A, B, and C, and pre-
separation joint costs of 60,000, we can use the average unit cost method to determine the joint costs
apportioned to each product.
First, calculate the average cost per unit by dividing the total joint cost by the total units at the split-off
point. Then, multiply this cost per unit by the units of each product to determine the apportioned joint
costs for each product.
Joint Cost Apportionment
When calculating the average cost per unit and total joint cost, you need to ensure that all joint
products have the same cost per unit. To do this, simply multiply the units of the products by the cost
per unit. The uniform application of this method ensures that all joint products have the same cost per
unit. Calculate the cost per unit for all joint products. Multiply the units of the products by the cost per
unit. The resulting value is the cost apportioned to each product.
It's a straightforward method that ensures all joint products have the same cost per unit. This makes it
easy to calculate the cost apportioned to each product.
3.Sales Value at Split-Off Point Method
Introduction to Joint Products and By products in Cost Accounting
Joint Products
If the simultaneously produced products have almost equal sales value and it is significant, then they are
known as joint products. For example, in the oil industry, crude oil is processed through fractional
distillation to produce jet fuel, petrol, diesel, kerosene, asphalt, paraffin, and lubricants, all of which
have almost equal sales value. If all the products produced at the split-off point have almost equal sales
value, then they are joint products.
By products
If one product is more valuable than the other, then the more valuable product is known as the main
product and the less valuable product will be the by-product. By products are produced incidentally
while manufacturing the main product. For example, a sugar factory’s primary product is sugar, but
molasses and bagasse are also produced as by products. By products are not intentionally produced, but
they cannot be avoided and have little commercial value.
Other examples of by products include furniture manufacturing, where leftover bits and pieces of wood
become waste and can be sold or thrown out, and making carrot juice at home, where the juice is the
main product and the leftover pulp becomes a by-product
Understanding Joint Products and By-products
Joint products are products that are produced simultaneously and have almost equal sales value, while
by-products are products that emerge incidentally while manufacturing other products and have a lower
value than the main products.
After the split-off point, different products are obtained, and they can be sold immediately or further
processed to make them more refined and valuable. The cost of further processing is incurred
separately, but the main problem is that the joint cost has been incurred jointly, and it is not known
exactly how much cost has been incurred for each product. Therefore, the joint cost needs to be
apportioned to the joint products to calculate profit and set selling prices.
Methods of Apportioning Joint Cost to Joint Products
Physical Measure Method
Average Unit Cost Method
Sales Value at Split-Off Point Method
Sales Value After Further Processing Method
Net Realizable Value
, These methods will be discussed in detail in the following sections.
1.Physical Unit Method
In our previous video, we covered the physical unit method for apportioning joint costs, which involved
taking the ratio of the output and apportioning the joint costs accordingly.
2.Average Unit Cost Method
The average unit cost method involves calculating the average cost per unit of output and apportioning
the joint costs accordingly. To calculate the average unit cost, divide the total joint cost by the total
output at the split-off point. This will give you the cost per unit, which you can then multiply by the units
of each product to determine the apportioned joint costs for each product.
This method assumes that the units produced are of standard quality and measurable in the same units.
All joint products will have a uniform cost per unit when this method is applied.
However, this method cannot be used when the units are not comparable, such as when products are
measured in different units.
Illustration
Let’s take a simple problem as an example. Given production data for products A, B, and C, and pre-
separation joint costs of 60,000, we can use the average unit cost method to determine the joint costs
apportioned to each product.
First, calculate the average cost per unit by dividing the total joint cost by the total units at the split-off
point. Then, multiply this cost per unit by the units of each product to determine the apportioned joint
costs for each product.
Joint Cost Apportionment
When calculating the average cost per unit and total joint cost, you need to ensure that all joint
products have the same cost per unit. To do this, simply multiply the units of the products by the cost
per unit. The uniform application of this method ensures that all joint products have the same cost per
unit. Calculate the cost per unit for all joint products. Multiply the units of the products by the cost per
unit. The resulting value is the cost apportioned to each product.
It's a straightforward method that ensures all joint products have the same cost per unit. This makes it
easy to calculate the cost apportioned to each product.
3.Sales Value at Split-Off Point Method
