Chapter Four

Joint and By-Product Costing

Course: Cost Accounting 2

Course Code: BSAC3104
Specialisation: Accounting and Finance
 Learning Outcomes :

• Explain joint and by-products costing,

• Allocate joint costs and
• Determine the price of joint and by-products
Recommended Reading

Books
1. Cost and Management Accounting : Theory, Problems and Solutions by M N Arora

2. Financial Cost and Management Accounting by Periasamy, P

ProQuest Resource
1. https://ebookcentral.proquest.com/lib/momp/detail.action?docID=588039
2. http://ebookcentral.proquest.com/lib/hctom/detail.action?docID=3011183
Topic Content

1. Meaning of Joint Products

2. Features of Joint Products
3. Concept of Split Off Point, Joint Costs, and Subsequent Costs
4. Methods of Apportioning Joint Costs over Joint Products
5. By-Products
6. Distinction between By-Products and Joint Products
7. Accounting Treatment of By-Products
1. Meaning of Joint Products
The term joint products used for two or more products of almost equal value
which are simultaneously produced from the same manufacturing process and the
same raw material.
Joint products thus represent two or more products separated in the course of
processing, each product being in such proportion and of such a nature that no
single one of them can be regarded as the main product.

Examples of Joint Products

1. Oil refining – Petrol, Diesel, Kerosene, Grease etc.
2. Flour mill - White flour, Brown flour etc.
3. Dairy – Cream, Skimmed milk
4. Meet processing -Meat, Leather. etc.
2. Features of Joint Products

1. Joint products are produced from the same raw material in natural
proportions.
2. They are produced simultaneously by a common process.
3. They are comparatively of almost equal value.
4. They may require further processing after their point of separation.
3. Concept of Split Off Point, Joint Costs, and
Subsequent Costs

Split off Point refers to that stage in the manufacturing process at which the
products get separated and become separately identifiable

Joint Costs (or common) refers to the total costs incurred up to the split off point.

Subsequent Costs refer to the total costs incurred after the split off point on
further processing of products.
4. Methods of Apportioning Joint Costs over
Joint Products
a. Average Unit Cost Method
b. Physical Unit Method
c. Survey Method
d. Sales Value Method
e. Net realizable Value or Reserve Cost Method
a. Average Unit Cost Method

In this method, the joint cost is apportioned by using the average unit cost which
is obtained by dividing the total joint cost by the total number of units produced
of all the products. The average cost per unit of each product is the same.

Average cost per unit = Joint Cost ÷ Total Numbers of Units Produced
Problem 1: The Muscat LLC produces four products in a manufacturing process. The company
produce 10,000 units of A, 20,000 units of B, 15,000 units of C, and 25,000 units of D. The cost
before split off point for the four products was OMR 140,000. Using the average unit cost method
a. Calculate the unit cost
b. Show how the joint cost would be apportioned among the products.

Solution: Average cost per unit = Joint Cost ÷ Total Numbers of Units Produced
= OMR 140,000 ÷ 70,000 = OMR 2 per unit
Statement showing the allocation of joint costs
Product Units Average Cost Joint Cost allocation
A 10,000 OMR 2 OMR 20,000
B 20,000 OMR 2 OMR 40,000
C 15,000 OMR 2 OMR 30,000
D 25,000 OMR 2 OMR 50,000
Total OMR 140,000
Problem 2: Find out the cost of joint products A, B and C using average unit cost method from the
following data: Pre separation joint cost OMR 520,000.
Products Units Produced
A 4200
B 1500
C 2300
a. Calculate the unit cost
b. Show how the joint cost would be apportioned among the
products.
Problem 3: A manufacturing company produces the following products by using 5,000 tons of
coal at OMR 5 per ton into a common process.
Product X 2,100 Units
Product Y 2,900 Units

a. Calculate the unit cost

b. Show how the joint cost would be apportioned among the
products.
Problem 4
Problem 5
The Food Corporation produces four products in a manufacturing process. The
Corporation produced 1000 units of product A, 2000 units of B, 1500 units of C and
2500 units of D. The cost before split off point for the four products was 14000 RO.
Using the average cost method, determine:
◦ The unit cost, and
◦ How the joint cost would be apportioned among the products.
b. Physical Unit Method
Under this method, the joint cost is apportioned on the basis of relative weight,
volume or quantity, etc. of each product obtained at the point where the split off
occurs.

For the method to be suitable, the unit of measurement should be applicable for all
products, e.g. usually gases, liquids and solids cannot be taken together.

However, where joint products cannot be measured by the same measurement unit,
the joint products must be converted to a denominator common to all the units
produced.

Any processing loss is also distributed over the products on the same basis.
Problem 6: One ton of raw material put into a common process yields joint products P, Q, R and S;
their weight being 63 Kgs, 117 Kgs, 180 Kgs and 540 Kgs respectively. The rest weight is normal
wastage.
Based on the total processing cost of OMR 20000 per ton of raw material input, you are required to
apportion the joint costs to products P, Q, R and S.
Solution: Total Loss in tons = 1,000 Kgs – (63 Kgs + 117 Kgs + 180 Kgs + 540 Kgs) = 100 Kgs

Statement showing the allocation of joint costs

Products Output Units Loss Units Total Weight Total Weight in Percentage Cost
A B = (Loss ÷ Total Output) X A C =A+ B D = (C ÷ Total Input) X 100 E = Total Cost X D
P 63 (100 ÷ 900) X 63 = 7 63 + 7 = 70 (70 ÷ 1,000) X 100 = 7% OMR 20,000 X 7% = 1,400
Q 117 (100 ÷ 900) X 117 = 13 117 + 13 = 130 (130 ÷ 1,000) X 100 = 13% OMR 20,000 X 13% = 2,600
R 180 (100 ÷ 900) X 180 = 20 180 + 20 = 200 (200 ÷ 1,000) X 100 = 20% OMR 20,000 X 20% = 4,000
S 540 (100 ÷ 900) X 540 = 60 540 + 60 = 600 (600 ÷ 1,000) X 100 = 60% OMR 20,000 X 60% = 12,000
Total 900 100 1,000 100% OMR 20,000
Problem 7: A manufacturing company produces the following products by using 25,000 tons of coal at OMR 20
per ton into a common process.
Product A 11,500 tons Product B 11,000 tons
Apportion the joint cost among the products based on the physical unit method.
Problem 8: A manufacturing company produces the following products by using
5,000 tons of coal at OMR 5 per ton into a common process.
Product X - 2,100 units Product Y – 2,900 units
Apportion the joint cost among the products based on the physical unit method.
Problem 8

Oman Chromite Company, processing material X, produces four joint products A,

B, C and D. Cost per ton of X process is as under:
Particulars RO
Material Cost 13500
Labor and Overhead Cost 9000
Total Joint Cost 22500
The joint products yielded 540, 180, 118 and 62 kilograms respectively, the rest
being normal wastage, apportion the total cost of X to each one of the joint
products.
Problem 9

The following data have been extracted from the books of Coke Company L.L.C.

The price of coal is 800 RO. Direct labor and overhead cost to split off point are 400
RO and 600 RO per ton of coal. Calculate the material, labor, overhead and total
cost of each product on the basis of weight.
 c. Survey Method

Survey Method is also termed as "Points Value Method." In this method, joint costs
are allocated on the basis of percentage or points value is assigned to each products
according to their relative importance.

This method is also taken into various relevant factors such as volume, mixtures,
selling price, technical engineering and marketing processes.

The ratio of joint costs can be calculated by physical quantities of each products are
multiplied with the weightage points.
Problem 10: In the timber industry, the milling operations to the split off point during a period amounted to
OMR 17,400 with the following production:
1rst grade timber 400 units
2nd grade timber 500 units
3rd grade timber 600 units
You are required to apportion the joint cost on technical evaluation with points 5, 4 and 3 for first, second and
third grade respectively.
Solution: Statement Showing the Allocation of Joint Costs
Product Units Point Value Assigned Weighted Units Cost Per Weighted Unit Joint Costs Apportioned Cost per Unit E ÷ A
A B C=AXB D E=CXD
1st Grade 400 5 400 X 5 = 2,000 3 2,000 X 3 = 6,000 6,000 ÷ 400 = 15
2nd Grade 500 4 500 X 4 = 2,000 3 2,000 X 3 = 6,000 6,000 ÷ 500 = 12
3rd Grade 600 3 600 X 3 = 1,800 3 1,800 X 3 = 5,400 5,400 ÷ 600 = 9
5,800 17,400

Cost Per Weighted Unit = Total Joint Cost ÷ Total No of Weighted Units

= 17,400 ÷ 5,800 = OMR 3

Problem 11: Apportion the joint cost of joint products X,Y and Z using survey
method from the following data:
Joint costs up to separation is OMR 120,000
Output for X is 2,000 units, Y is 800 units and Z is 1,200 units
Point values assigned on the basis of technical survey for X is 2, Y is 10 and Z is 2.50
Problem 12: Apportion the joint cost of joint products A,B and C using survey method
from the following data:
Joint costs up to separation is OMR 400,000
Output for A is 500 units, B is 200 units and C is 300 units
Point values assigned on the basis of technical survey for A is 4, B is 3 and C is 2
Problem 13

A canning merchant supplies you the following production data during the year 2023:
Grades Units Produced
A 5,000
B 8,000
C 10,000
The Pre-separation cost incurred was OMR 207,000. The joint cost is apportioned on
technical evaluation based on the proportion of 5: 3: 2 to three grades respectively.
Apportion the joint cost under survey method.
d. Sales Value Method
Under this method, joint costs are apportioned to various joint products on the basis of
sales value of each such product. The sale value method has the following variants :

On the basis of unit prices :

In this method, the selling price unit of various Joint products is taken as the basis for
apportionment of joint costs. In other words, Joint cost is apportioned to various joint
products in the ratio of selling prices of individual joint products without any regard to
the quantities.
It is thus suitable when the number of units of production of all the products are equal.
Example
Sales Value Method
(b) On the basis of sales value:
• In this method, the apportionment is done on the basis of weighted sales value i.e.
number of units produced and sold multiplied with the selling price per unit. This
method thus gives due consideration to the quantities of various joint products
produced.
• The difference between the method based on unit selling prices discussed earlier
and this method is that while the former gives no consideration to the quantities of
joint products produced, the latter gives due importance to the quantities.
• This method will give satisfactory results even when number of units of different
joint products are widely different.
Sales value method
Exercise 14
From the following information, find the profit made by each product apportioning
joint costs on sales-value basis:
Joint cost:
Direct materials : RO 126,000
Power : RO 25,000
Petrol : RO 5,000
Labour : RO 7,500
Other charges : RO 4,100
Product X Product Y
Selling Expenses RO 20,000 RO 8000
Sales Value RO 152,000 RO 168,000
iii. Net realizable Value or Reserve Cost Method

In this method, the joint cost is apportioned on the basis of net value of each
product.

The net value is calculated by deducting the following from the sales value:
a) Estimated profit margin
b) Selling and distribution costs (if any)
c) Cost of further processing after separation point

This is known as reverse cost method because net values are calculated by
working backward from sales values.

This method is particularly used when products are not sold at their stage at split
off point but require further processing.
 Problem 15: Allocate the following joint cost for product X, Y and Z using the net realizable value method.
Basic raw material OMR 5000 Initial processing wages OMR 3000 Initial processing overheads OMR
2000
Estimated profit on selling price for X, Y and Z is 5%, 10% and 7% respectively.
Output, Selling Prices and Additional Processing Costs are as follows:
Additional Processing Costs after split off (OMR) Selling Price per unit after further processing (OMR) Output (Units) Products
2000 30 400 X
1500 15 500 Y
5000 20 700 Z

Solution: Total Joint Costs = OMR 5000 + RO 3000 + RO 2000 = OMR 10,000
Statement Showing the Allocation of Joint Cost
Product Output Selling Price per Sales Value after Estimated Profit Further Estimated cost Joint cost apportioned
A unit after further further D processing at split off G = (Joint Cost ÷ Total Estimated
processing processing costs point F=C-D Cost at Split off Point) X F
B C=AXB E
12,000 X 5% =
X 400 30 12,000 2,000 9,400 (10,000 ÷ 22,670) X 9,400 = 4,146
600
7,500 X 10% =
Y 500 15 7,500 1,500 5,250 (10,000 ÷ 22,670) X 5,250 = 2,316
750
14,000 X 7% =
Z 700 20 14,000 5,000 8,020 (10,000 ÷ 22,670) X 8,020 = 3,538
980
22,670 10,000
Problem 16: Allocate the following joint cost for product M and N using the net
realizable value method.
Basic raw material OMR 400
Initial processing wages OMR 300
Initial processing overheads OMR 300
Estimated profit on selling price for M and N is 5% and 10% respectively.
Output, Selling Prices and Additional Processing Costs are as follows:
Additional Processing Costs after split off Selling Price per unit after Output (Units) Products
(OMR) further processing (OMR)
500 5 600 M
1,000 10 400 N
 Step 1: Calculate the total NRV of the joint products M and N.

The NRV of each product is calculated as follows:

Product M:
Selling price per unit = OMR 5
Estimated profit on selling price = 5% of OMR 5 = OMR 0.25 per unit
NRV per unit = Selling price per unit - Estimated profit on selling price = OMR 4.75 per unit
Total NRV of product M = NRV per unit x Output (Units) = OMR 4.75 x 600 = OMR 2,850

Product N:
Selling price per unit = OMR 10
Estimated profit on selling price = 10% of OMR 10 = OMR 1 per unit
NRV per unit = Selling price per unit - Estimated profit on selling price = OMR 9 per unit
Total NRV of product N = NRV per unit x Output (Units) = OMR 9 x 400 = OMR 3,600

Total NRV of joint products = Total NRV of product M + Total NRV of product N = OMR 2,850 + OMR 3,600 = OMR 6,450
 Step 2: Calculate the proportion of the NRV of each product to the total NRV.

Proportion of NRV of product M = Total NRV of product M / Total NRV of joint products = OMR
2,850 / OMR 6,450 = 0.441
Proportion of NRV of product N = Total NRV of product N / Total NRV of joint products = OMR
3,600 / OMR 6,450 = 0.559

 Step 3: Allocate the joint costs based on the proportion of the NRV of each product.

Joint costs of OMR 1,000 will be allocated to each product based on the proportion of NRV.

Allocation of joint costs for product M = OMR 1,000 x 0.441 = OMR 441
Allocation of joint costs for product N = OMR 1,000 x 0.559 = OMR 559

Therefore, the joint costs of OMR 1,000 will be allocated to product M and N as OMR 441 and OMR
559, respectively.
Produ Outp Selling Price Additional Estimated NRV per unit Total NRV Proportion of NRV Joint cost apportioned
ct ut per unit Processing profit on (Selling Price - G = (Joint Cost ÷ Total
Costs after selling price Estimated profit) Estimated Cost at Split off
spli (%) Point) X F

4.75 x 600 = (10,000 ÷ 22,670) X 9,400 =

M 600 5 500 5×5% = 0.25 OMR 4.75
OMR 2,850 4,146
9 x 400 =
(10,000 ÷ 22,670) X 5,250 =
N 400 10 1000 10×10% = 1 OMR 9 OMR 3,600
2,316
OMR 6,450 10,000
Problem 17
A factory produces three products L, M and N of equal value from the same
manufacturing process. The costs before the split off point is RO 298,800.
The number of units, Subsequent costs and profit percentages are given as under :

Apportion the joint costs by using Reverse Cost Method and find profit
Problem 18
A company manufactures product A, B and C. The actual joint expenses of
manufacture for a period were RO 63,000. It was estimated that profits on each
product as a percentage of sales would be 30%, 25% and 15% respectively.
Subsequent expenses were:
A B C
Material RO 1000 RO 750 RO 250
Direct wages RO 2000 RO 1250 RO 500
Overheads RO 1500 RO 1250 RO 750
Total RO 4500 RO 3250 RO 1500
Sales RO 60,000 RO 40,000 RO 25,000
Prepare a statement showing the apportionment of joint expenses.
Problem 19
A factory produces three products A, B and C of equal value from the same
manufacturing process. Their joint cost before split off point is 19600 RO.
Subsequent costs are given as under:
Particulars A B C
Material 1500 1300 1000
Labor 200 150 100
Overheads 800 550 400
2500 2000 1500

Selling Price 30000 24000 20000

Estimated Profit on Selling Price 30% 25% 20%
It is required to apportion the joint costs by using Reverse Cost Method
 5. By-Products
By-products are products of relatively small value which are incidentally and
unavoidably produced in the course of manufacturing the main product.

These by-products are unavoidably produced and are of secondary value. The sales
value of these by-products is much less as compared to the main product.

By-products may be
a. Those sold in their original form without further processing.
b. Those which require further processing in order to be saleable.

Example: Leather is a by-product of animal slaughter industry.

Molasses is a by-product of sugar manufacturing
6. Distinction between By-Products and Joint Products

a. Relative sales value: If the sales value of all the products are more or less equal,
they are treated as joint products.

If, however, there are wide differences in the relative sales values of products, the
product with the greater sales value is treated as the main product and the products
of lower value are treated as by-products.

b. Objective of manufacture: If the objective of manufacturing is product A, then

unwanted products B and C be treated as by-products.
c. Policy of management: The management may decide to treat a particular product
as the main product and the other products as by-products.

Alternatively, it may choose to treat all products as joint products.

 7. Accounting Treatment of By-Products
a. Where by-products are of small total value :
In such a case it is not considered practicable to apportion any part of the joint cost
to by-products.

The net income realized by the sale of by-products may be treated, in anyone of the
following two ways:

i. It may be treated as 'miscellaneous income' and credited to costing Profit

and Loss Account.
ii. It may be credited to the process account III which the by-product has
arisen.
b. Where by-products are of considerable total value :
Where by-products are of considerable sales value, it is proper to apportion a part of
the joint cost to by-products.

The apportionment of joint cost to by-products can be done by any of the four
methods discussed earlier in costing of joint products.

These methods are:

i. Sales value method
ii. Physical units method
iii. Average cost method
iv. Points value or survey method
c. Where by-products require further processing :
In such situations, the share of by-product in joint cost at the split-off point may be
arrived at by subtracting the profit and the further processing cost from the
realizable value of the products i.e., by using Reverse Cost Method.
Problem 18: The yield of a certain process is 80 % as to the main product. 15% as to the by-product and 5%, to
the process loss. The material put in the process (5,000 Units) cost OMR 23.750 per unit and all other charges
amounts to OMR 14,250, of which power costs are accounted for one third. It is ascertained that power is
chargeable to the main product and by-product in the ratio of 10:9. Draw up a statement showing the cost of the
by-product.
Solution Working Notes:
Cost of Materials (5,000 X OMR 23.750) = OMR118,750
Yield of Main Product (5,000 X 80%) = 4,000 units
Yield of By-Product (5,000 X 15%) = 750 units
Process Loss (5,000 X 5%) = 250 units
Amount of Power (14,250 X 1) ÷ 3 = OMR 4,750
Amount of Other Charges (14,250 – 4,750) = OMR 9,500
Statement of Cost of By-Product
Particulars Amount (OMR)
Material Cost (118,750 X 750 ) ÷ 4,750 18,750
Other Charges (Except Power) (14,250 X 750) ÷ 4,750 1,500
Power (14,250 X 9) ÷ 19 2,250
Total Cost 22,500
Problem 19: Product Z yields two by-products A and B. The joint cost of
manufacture is OMR 65,800. From the following information, show how would you
apportion the joint cost of manufacture :
Z A B
(i) Sales (in OMR) 100,000 40,000 25,000
(ii) Manufacturing costs after separation 5,000 4,000
(iii) Estimated selling expenses on sales 20%
20%
(iv) Estimated profit on sales 25% 30%
Problem 20: In manufacturing the main product, a company processes the incidental waste to two
by-products A and B. From the following data relating to the products you are required to prepare a
Comparative Profit and Loss Statement showing the individual costs and other details. The total
costs up to separation point was OMR 310,400.

Main Product By-Product By-Product

X A B
Sales 800,000 64,000 96,000
Costs after Seperation 80,000 12,800 14,400
Estimated Profit 20% 20%
Estimated selling expenses as % to sales Value 20% 10% 15%
Problem 21: X Ltd. manufactures product A which yields two by-products B and C.
In a period the amount spent up to the point of separation was OMR 20,600.
Subsequent expenses were:
A B C
Materials (in OMR) 300 200 150
Direct Wages (in OMR) 400 300 200
Overhead (in OMR) 300 270 280

Gross sales value of product A, B and C was RO 15,000, RO 10,000 and RO 5,000
respectively. It was estimated that the net profit as a percentage of sales in B and C
would be 25% and 20% respectively.
Ascertain the profit earned on A.
 Reference Books:

1. Cost and Management Accounting : Theory, Problems and Solutions by M N

Arora
2. Financial Cost and Management Accounting by Periasamy, P
3. Cost Accounting: Principles and Practices by SP Jain and KL Narang
 CONTACT INFORMATION:

Name of the Staff :

Office:
Email:

VERSION HISTORY

Version No Date Approved Changes incorporated

05 Sem. (I) 2022/2023