TREATMENT OF JOINT & BY-PRODUCT

COSTS
 JOINT PRODUCTS AND COSTS
 The products which are of equal importance in terms of ‘sale
value’ are treated as main product.

 Cannot be separated until a stage of completion, known as

split-off point;

 Examples: Extraction Industries: Coal, Petroleum etc.; Food

Processing Industries, e.g., Milk, Cocoa Beans, etc.

 Refineries (Crude Oil is processed at ‘Distillation Plant’ first

that results into different semi-processed products, e.g.,
Gasoline, Kerosene, LPG, and Lube Oil etc.)

 The Joint products can be sold at split off point OR can be

processed further.

 The cost incurred up to split-off point are ‘Joint Costs’; whereas all
the costs incurred after split-off point are known as separate
costs.
EXAMPLE OF JOINT COSTS IN A DAIRY

Raw Milk

Cream Skimmed Milk

 ALLOCATION OF JOINT COSTS

Need to be allocated among the jointly processed

products to determine their individual costs;

Methods Used

 Physical Measurement Methods (No. of Units;

Volume of Production in terms of Kg., Liter, etc.)

 Market-Based Methods
 Sale Value at Split Off
 Net Realizable Value Method (NRV)
 PHYSICAL MEASUREMENT METHODS

 Useful when products are homogeneous;

 Can be measured using the same unit of

measurement;

 Besides, assumes that each product is equally

valuable in terms of revenue earning potential.

Possible Application: Sugar Industry

Producing Six varieties of Sugar (in general):
 S30; M30; L30 and S31; M31; L31 (All the products
are measured in Kg.; all the products command nearly
similar price in the market, highest for L31 and
minimum for S30)
 MARKET-BASED METHODS

Based on the reasoning of benefits received

 Sale Value at Split Off

 Can only be applied to the products which are sold
just after split-off point.

 Net Realizable Value Method (NRV)

 Used when the product is processed further to make

it saleable;

 Where the sale value cannot be determined just after

split off point.
MOTHER DAIRY: JOINT COSTS
MARKET-BASED METHODS
 MOTHER DAIRY
MARKET-BASED METHODS
 MOTHER DAIRY
MARKET-BASED METHODS (NRV)
 MOTHER DAIRY
MARKET-BASED METHODS (NRV)
TREATMENT OF BY-PRODUCTS
 TREATMENT OF BY-PRODUCTS

 By-Products are differentiated from Joint Products based on

their sale value (negligible compared to that in the case
of Joint Products) and intention to produce.

 Costs incurred till split-off point are not apportioned

to the by-products.

 By-Products in Sugar Industry:

 Molasses (Used by Liquor companies),

 Bagasse (Used by ‘board making’ companies)

 Used Internally as well as sold to outside parties.

 Press-mud (Used by Farmers as Fertilizer)

 ACCOUNTING TREATMENT OF BY-PRODUCTS

 Credit the Profit and Loss A/C directly with the net
revenue obtained from the sale of By-Products;

 Credit the process A/c or COP with opportunity cost

of the product.

For Example:
Use of Bagasse in Boiler House to generate power
through Turbine.