JOINT PRODUCTS AND BY-PRODUCTS

I. Definition of terms
Joint Products Defined- are individual products, each with significant sales values,
which are produced simultaneously from the same raw and/or manufacturing
process.

Joint products are two or more products produced together up to a split-off point
where they become separately identifiable. They cannot be produced by themselves.
Joint products incur common, or joint costs, (direct materials, direct labor and
applied factory overhead) before the split-off point. The split-off point is the point of
production at which the joint products can be individually identified and removed
from the joint, or common process.

The joint products can then be sold or processed further. Costs incurred after the
split-off point for any one of the joint products are called separable costs or further
processing costs. These costs are already identified to each joint product.

By-product – a product of relatively small total value produced simultaneously with

other products.
Split-off point – the earliest point wherein joint products become separable individual
units
Joint cost – costs that arises from the simultaneous manufacturing of products in a
joint process

II. Characteristics of joint products

a. Joint products have a physical relationship that requires simultaneous common
processing.
b. Manufacturing of joint products always has a split-off point at which separate
products emerge, to be sold as is or processed further.
c. None of the joint products is significantly greater in value that other joint
products.

III. Industries which produce joint products

For example, a steak cannot be produced without also roasts, ribs, liver, hamburger, etc.
Other industries which produce joint products include
1) Chemicals 3) Mining
2) Lumber 4) Petroleum

IV. Characteristics of Main Products

a. The products must be the primary objective of the manufacturing operations.
b. Sales value must be relatively high if compared with the products resulting at the
same time.
c. In case of joint products, the manufacturer must produce all of the products
through a common process.

V. Characteristics of By-product
a. The product is not the primary objective of the manufacturing operations.
b. Sales value of the by-product is comparatively low as compared with the sales
value of the main product.
VI. Accounting methods for Main products
Methods of Allocating Joint Costs to Joint Products:
1. Market value method – result in all products showing the same gross profit rate per
dollar of sales
a. Product saleable at split-off – allocate joint cost based on aggregate total sales
value of joint products at split-off point
b. Product not saleable at split-off – allocate joint cost based on the aggregate net
realizable value (hypothetical market value) of joint products at split-off point

2. Average unit cost method (Peanut butter costing) – it allocates joint costs based on
the relative units of each joint products; it assumes that all units, regardless of nature
or type, which undergone processing consumes equal amount of cost.
3. Weighted-average method – allocates joint costs based on points or factors set for
each product class representing size of the unit, difficulty to manufacture, time spent,
difference in time spent and materials used
4. Quantitative unit method - uses pounds, liters, meters, etc. to allocate joint costs to
joint products

VII. Accounting methods for By-products

Methods of Accounting for By-Products:
1. No cost is allocated
a. Other income c. Deduction to cost of goods sold
b. Sales d. Deduction to total production costs
2. Cost is allocated (the joint product view)
a. Replacement cost method – the by-product purchase cost if it were to be
purchased externally is assigned the by-product and deducted from the joint cost
b. Market value/reversal cost method – the estimated recoverable value from the
by-product is assigned to the by-product.