Joint Products

 Many production processes begin with a single

raw material and end up with two or more
products.
 A good example is crude oil which end up
with kerosene ,gasoline, plastic and other
petroleum products. The raw material is
treated as a single product up to a certain point
called the split off point.
 After this point the single product is divided
into two or more products called jointed
products. The cost of producing this single
product up to the split off point is called joined
cost. These costs are common to all units
produced and cannot be associated directly to
with the units once they split into individual
products
 Eg .take the case of raising a cattle; buying,
feeding, caring for and transportation. Once
the cow is slaughtered – split off point – there
is no way to tell how much joint cost was of
steak, burger or sausage.
 Steak

Cattle Hamburger

Sausage
 Accordingly
 Joint products are main products that are
results from manufacturing operations in
which companies produce two or more
products of significant sales value.
 The raw materials are treated until a point
called the split of point . At this point the
single product is divided into two or more
products
 Accordingly :
 Joint costs
 Joint costs are costs that are incurred due to
simultaneous process of manufacturing two or
more products.
 Joint costs are not obtained separately and
have to be allocated to the products. Allocation
of joint products because:
 The split-off point and separable cost
 Split off point is the point where we can
identify joints products separately from by
products. After the split off point we can
identify products and production costs are
easily traceable. Separable production costs
are materials, labor and overhead costs.
 Assignment of costs to joint products
 Joint products can be allocated by two ways:
 Physical measure (quantity method): in it we
accumulate the cost of the joint products and divide it
upon the different products.
 Sales Market : assumes that input costs are matched
with revenue generated by each output
 Gross market value: assumes that input costs are
matched with the sales value at the split off point
 Problem
 Noor company manufactures three products A, B, and
C from a particular joint process. Each product may
be sold at a split-off and may be processed further.
Joint production costs for the period are $ 264000.
All production costs of additional processing are of a
variable nature and are directly traceable to the
products involved.
 The following data are from the company records.

 Units Sales value Separable costs Sales value
at split off after processing

 A 18000 $330000 $36000 $350000

 B 8000 198000 6000 225000
 C 6000 132000 9000 148000
 Required:
 determine the joint cost to each group of joint
product using the quantity method
 Assume the management assigns weights of
2:3:1 to products A, B, and C respectively
based on the engineering skills required. What
is the joint cost per actual unit produced?
 Using the sales market method, distribute the
cost among the joint products.
 Determine the unit cost that is most relevant
to sell or process for each product group.
 Recommend which product should be
additionally processed to maximize net
contribution to profit. Support your
recommendation by a cost analysis.
 Solution
 1. Joint product Joint cost allocation
 A $148500 (18000/32000 X 264000)
 B 66000 (8000/32000X 264000)
 C 49500 (6000/32000X 264000)
 264000
 or $264000/ 32000 = $8.25 per unit
 2.
 Joint product Weighted Joint Cost/ Cost Allocation
unit actual Units

 A 36000 144000 $8
 B 24000 96000 12
 C 6000 24000 4
 $264000 = $ 4 cost per weighted unit
 66000
 `
 3. Joint product Joint cost allocation
 A $132000 ( 330000/ 660000 X 264000)

 B 79200 ( 198000/ 660000X 264000)

 C 52800 ( 132000/660000X 264000)

 264000
 4. The separable cost per unit is the relevant
cost factor in sell of process further decision.
Unit separable cost is as follows for each joint
product:
 Joint product Unit separable cost
 A $ 2 (36000/18000)
 B 0.75( 6000/ 8000)
 C 1.50 ( 9000/6000)
 Products 
 A B C
 Sales after 350000 225000 148000
 additional processing
 Sales value 330000 198000 132000
 at split off
 Differential 20000 27000 16000
 revenue
 Differential cost 36000 6000 9000
 Income (16000) 21000 7000
 Joint products B and C should be further
processed; however product A should be sold
at the split-off point.