ACCT3203

Contemporary Managerial Accounting

Joint Products

Unit Coordinator & Lecturer

Dr Thanes Subraamanniam
UWA Business School
The University of Western Australia
 Joint Products: Cost Allocation

Learning Objectives:
◦ Identify the split-off point(s) in a joint cost situation
◦ Distinguish joint products from byproducts
◦ Allocate joint costs using four methods
◦ Explain why joint costs are irrelevant in a sell-or-process further
decisions
◦ Account for byproducts using two different methods
 Allocation of Joint Costs
Manufacturing firms produce several end-products (saleable products)
from a single raw material input
Example: A Meat-Packing company produces several end products (e.g.,
bacon, ham, pork chops, etc.) from a common input (e.g., pig) [see
graphical presentation]

To decide how the cost of that input is going to be divided among the end
products – Allocation of joint costs
Allocation of Joint Costs
Main Product vs By-product
Joint Product vs By-product
 Definitions
Joint Costs: Costs of a single process that yield multiple products
simultaneously
Split off Point: The point in the process when the multiple products become
separately identifiable
Separable Costs: Costs incurred beyond the split-off point that are
identifiable with individual products
Joint Product: A product that has relatively high sales values compared to other
products yielded by a joint production process
Main Product: When a single process yields only one product with high sales
value
By-product: A product with low sales value compared to the main or joint
product
 Joint Costs Allocation
Physical measures:
▪ Physical measure method

Market-based:
▪ Sales value at split-off method
▪ Net realizable value (NRV) method
▪ Constant gross margin percentage NRV method
 Joint Costs and Decision Making
Most decisions in the joint costs area revolve around whether to sell at split off point or
process the product further.

Decision:-
Sell/further process products 1, 2 & 3?
Question: Will the above decision in any way be influenced by the $1 million?
Answer: No
Why: Joint costs ($1 million) incurred up to point of split-off are sunk (past) costs.
 Incremental Revenues vs Incremental Costs

As a guide when making a sell or further processing decision:

If Incremental Revenues (IR) from further processing is GREATER THAN Incremental
Costs (IC) incurred by further processing THEN proceed with further processing

➢IR > IC Further Processing

➢IR < IC Sell

▪ Incremental Revenues - Additional revenues received from the sale of output subjected to
further processing
▪ Incremental Costs - Additional costs incurred from further processing
 Accounting for By-products
Accounting methods for by-products address two major questions:

◦ When are by-products first recognized in the general ledger?

◦ At the time when production is completed (The Production Method)
◦ At the time of sale (The Sale Method)

◦ How do by-products appear in the income statement?

◦ As a cost reduction of the main or joint product(s)
◦ As a separate revenue or other income item
ALL THE BEST