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Joint Products

When a group of individual products is simultaneously produced, with each having a significant relative sale value, the products are usually called joint-products.

The differences between the by-products and joint-products are a matter of degree. If two or more products, one or more of relatively less importance than the other or others from one basic raw material are produced, they are known as by-products. If however, the products obtained are of relatively the same sales value, the products are termed as joint products. In case of joint products because emphasis is not any one product, it is necessary to analyse the total common costs so as to determine separately the cost of each individual joint product. The important methods of allocating the joint cost of production to the joint products are as follows:

(a) Market price method: This is the most common method employed for apportionment of joint costs to joint products upto the split off point. The market price may be either (i) at the split off point or (ii) after further processing. In case of method (i), costs are apportioned to joint products according to the proportion of total selling price of each of the joint products. However, where marker price at the split off is not known, method (ii) is adopted. In case of this method the selling price of each product as reduced by the cost of manufacture beyond the split-off point is considered as the basis for allocation of joint costs.

(b) Unit method: Under this method the common costs of joint products are allocated on the basis of physical output of each joint product at the split-off point. Adoption of this method may be difficult when the output of different joint products is not measurable in the same units.

(c) Working backward or reverse cost method: This is the most practical method. The estimated net profit, selling expenses and the processing costs after the split off point are deducted from the sale value of each product. This gives the estimated cost of each product at the split off point. The common costs may be appointed to the different products in the ratio of these estimated costs.

(d) Survey method: This method is based on this realization that joint costs cannot be allocated satisfactorily by considering one or two factors. Under this method the management carries an extensive survey for collecting information regarding all factors involved. Advice from the production, engineering, planning, selling and administrative divisions are sought and on the basis of their appraisal, percentage or weights are determined for apportionment of joint costs to join products. This method is considered more equitable than the first three methods because a combination of related factors is considered.