Joint Products

and By-
products
Objectives:
Upon completion of this lesson, students should be able to:

• Define joint costs and distinguish them from common costs.

• Discuss the appropriate methods for the allocation of joint
costs to joint products.
• Discuss the appropriate methods for the costing of by-
products.
• Prepare the different income statements showing the
revenue/net revenue from by-products.

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Joint products are individual products, each with significant sales
values, which are produced simultaneously from the same raw materials
and same manufacturing process.

CHARACTERISTICS OF MAIN PRODUCTS

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

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ACCOUNTING METHODS FOR MAIN PRODUCTS
1. Physical output method/Average unit cost method
2. Market value at split-off method
3. Net realizable value method (approximated market
value at split-off)

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Problem to illustrate the accounting methods for main products.
The following information is available for the Wise Company. Joint costs amounted to
P 164,000.
Units Disposal MV at Additional Final
Products Produced Costs Split-off Processing Costs MV
A 28,000 P 4,000 P 8.00 P 50,000 P 11.50
B 34,000 1,000 7.00 30,000 10.00
C 20,000 5,000 9.50 35,000 14.00

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Physical Output/Average unit cost method
The total production costs of a product are computed as follows:
Units Cost Share in Additional Total Production
Products Produced Per Unit Joint Cost Processing Costs Costs
A 28,000 2 56,000 50,000 106,000
B 34,000 2 68,000 30,000 98,000
C 20,000 2 40,000 35,000 75,000
82,000 164,000 115,000 279,000

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Problem to illustrate the accounting methods for main products.
The following information is available for the Wise Company. Joint costs amounted to
P 164,000.
Units Disposal MV at Additional Final
Products Produced Costs Split-off Processing Costs MV
A 28,000 P 4,000 P 8.00 P 50,000 P 11.50
B 34,000 1,000 7.00 30,000 10.00
C 20,000 5,000 9.50 35,000 14.00

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 Market Value at split-off method
Formula:

Joint cost allocation = Total market value of each product x joint costs
Total market value of all products
The total production costs of a product are computed as follows:

Units MV at Total MV Share in Additional Total Production

Products Produced Split-off at Split-off Joint Cost Processing Costs Costs
A 28,000 8.00 224,000 56,344 50,000 106,344
B 34,000 7.00 238,000 59,865 30,000 89,865
C 20,000 9.50 190,000 47,791 35,000 82,791
82,000 652,000 164,000 115,000 279,000

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Problem to illustrate the accounting methods for main products.
The following information is available for the Wise Company. Joint costs amounted to
P 164,000.
Units Disposal MV at Additional Final
Products Produced Costs Split-off Processing Costs MV
A 28,000 P 4,000 P 8.00 P 50,000 P 11.50
B 34,000 1,000 7.00 30,000 10.00
C 20,000 5,000 9.50 35,000 14.00

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 Net Realizable Value Method (approximated market value at split-off)
Formula:
Joint cost allocated = Total NRV of each product x joint costs
to each product Total NRV of all products

The total production costs of a product are computed as follows:

1 2 3 4 5 6 7 8 9
Units Final Total Add'l Disposal Share Total
Products Produced MV MV Cost Cost NRV in JC Costs
A 28,000 11.50 322,000 50,000 4,000 268,000 53,797 103,797
B 34,000 10.00 340,000 30,000 1,000 309,000 62,027 92,027
C 20,000 14.00 280,000 35,000 5,000 240,000 48,176 83,176
82,000 942,000 115,000 10,000 817,000 164,000 279,000
(2 x 3) 4-(5+6) (5+8)

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ILLUSTRATIVE PROBLEM 1: (no additional processing cost ) allocation of joint cost
to joint products

Maria manufactures three joint products from a joint process. The following data pertains to
operations of September.

Units MV at
Products Produced Split-off
A 5,000 8.40
B 3,000 6.00
C 2,000 5.00

Required: Allocate the joint cost of 42,000 using:

1. Market Value Method
2. Average unit cost method

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1. Market Value Method
Units MV at Total Percentage of JC Share in
Products Produced Split-off MV to sales value Joint Cost
A 5,000 8.40 42,000 60% 25,200
B 3,000 6.00 18,000 60% 10,800
C 2,000 5.00 10,000 60% 6,000
70,000 42,000

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2. Average unit cost method
Units Average Share in
Products Produced Unit Cost Joint Cost
A 5,000 4.20 21,000
B 3,000 4.20 12,600
C 2,000 4.20 8,400
10,000 42,000

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CHARACTERISTICS OF BY-PRODUCTS
1. The product is not the primary objective of the manufacturing operations.
2. Sales value of the by-product is comparatively low as compared with the sales value of the main
product.
ACCOUNTING FOR BY-PRODUCTS
The methods of costing by-products fall into two categories:
Category 1, which by-products are recognized when sold.
The net revenue may be presented on income statement as:
3. Other income
4. Additional sales revenue
5. A deduction from the cost of goods sold of the main product.

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ILLUSTRATIVE PROBLEM 2
Blue Company produces product XY from a process that also yield a by-product, Z.
The by-product requires P 4,000 additional processing cost. The companydecided to charge
the joint cost to XY. The by-product will require selling and administrative expenses of
P 1,000. Information concerning a batch produced in January 2023 follows:

Product Units Produced MV at SO Units Sold

XY 50,000 10.00 40,000
Z 20,000 1.00 15,000

The costs incurred up to the split off point are:

Direct Materials P 120,000
Direct Labor 100,000
Factory Overhead 80,000

Selling and Administrative Expense 80,000

Required:
1. Income statements showing the net revenue of the by-product using the
different methods.
a. Additional sales revenue
b. Other income
2. Income statement showing the net realizable value of the by-product as deduction
from the totalmanufacturing cost of XY. 15
1. SOLUTION:
a. Additional sales revenue
Sales
Main Product P 400,000
By-product 10,000 P 410,000
Less:Cost of Goods Sold
Direct Materials 120,000
Direct Labor 100,000
Factory Overhead 80,000
Total manufacturing cost 300,000
Less: Inventory, Jan. 31 60,000 240,000
Gross Profit 170,000
Less: Selling and administrative expenses 80,000
Net Income P 90,000

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The net revenue from the by-product is computed as follows:
Sales 15,000
Less: Add'l Processing Cost 4,000
Selling and administrative 1,000 5,000
Net Revenue of by-product 10,000

Inventory, January 31
TMC 300,000 = 6/unit x 10,000 = 60,000
Units produced (XY) 50,000 (remaining units)
(50,000-40,000)

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b. Other income

Sales P 400,000
Less:Cost of Goods Sold
Direct Materials 120,000
Direct Labor 100,000
Factory Overhead 80,000
Total manufacturing cost 300,000
Less: Inventory, Jan. 31 60,000 240,000
Gross Profit 160,000
Less: Selling and administrative expenses 80,000
Net operating income 80,000
Add: Revenue from by-product 10,000
Net Income P 90,000

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2. Income statement showing the net realizable value of the by-product as deduction
from the totalmanufacturing cost of XY.

Sales P 400,000
Less:Cost of Goods Sold
Direct Materials 120,000
Direct Labor 100,000
Factory Overhead 80,000
Total manufacturing cost 300,000
Less: Revenue from by-product 10,000
Net Manufacturing Cost 290,000
Less: Inventory, Jan. 31 58,000 232,000
Gross Profit 168,000
Less: Selling and administrative expenses 80,000
Net Income P 88,000

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Thank
you!