Joint Cost Allocation: Tips and Examples for Pricing and Marketing

joint products examples

The requirement of the material, the pattern of usage, and the way the process may be different for the production of the different co-products. The joint cost is the start of the process and the joint product is the final stage of the process. The profitability in selling of joint products and by-products can be determined.

joint products examples

For example, the costs related to power and fuel may be allocated among products on the basis of metered usage or production volume of each individual product. Consequential costs are the indirect overhead costs that arise from a joint production activity in which a variety of products result from one process. For example, in the case of assembly line manufacturing, many machines and work stations are used to complete multiple products produced on a single assembly line. If the total value of the joint product is significant, then additional analytical detail can improve decision making by management.

2 Joint Products

The same By-product or another By-product may be having a sale value. That means, the By­product may be sold for some price to outsiders in the market. For example, a spoon of sugar, if used for Coffee, is not available for Tea. Automobile Manufacturing Industry, whose final products are Cars, Jeeps, Trucks, etc., provides another example of Co-products. There may be a situation in which the same input results in more than one article as the output. The products that emerge from the same input and from the same operation may be of equal importance or unequal importance.

What is the difference between a product and byproduct?

A by-product or byproduct is a secondary product derived from a production process, manufacturing process or chemical reaction; it is not the primary product or service being produced.

They must then allocate the joint costs, such as the cost of raw materials and direct labor, to each joint product based on the proportion of the resources used in their production. Two or more products produced in a process which are almost of equal value and importance are called joint products. Joint products usually require further processing before sale. Production of any one of the joint product cannot be avoided or cannot be increased without corresponding increase in the production of other products.

Split-off point and cost allocation

Same Set of Inputs – All the Joint Products are obtained from the same manufacturing process and from the same set of input factors. That means, a set of input factors introduced into a manufacturing process results in the production of two or more products. Cost accountants must use an allocation method that accurately reflects the resources used in the production of each product and must use the same allocation method consistently over time. Accurate and consistent cost information is essential for decision-making and maintaining financial statement credibility. In cost accounting, cost accountants must ensure that joint and by-product costing complies with regulatory requirements, including tax regulations and accounting standards.

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The quantity of products produced are M – 1,575 kg, N – 1,350 kg, O – 900 kg, P – 450 kg and 225 kg were lost in processing. Joint products arise simultaneously, from the same raw material, and in the same process. However, co-products are produced together; but not from the same material and from the same process. Cost accountants must ensure that the chosen allocation method is consistent with GAAP and that the financial statements accurately reflect the costs incurred in producing joint and by-products.

Key Differences Between Joint Product and By-Product

The management has little or no control over the maintenance of quality of joint products. Joint products are two or more products separated in the course of processing, each having a sufficiently high saleable value to merit recognition as a main product. By Product can be understood as the subsidiary or secondary product which is incidentally produced, along with the main product, and has saleable or usable value. While producing the main product, there are instances when another product emanates which are of minor importance, as compared to the main product, are the by-product. Joint production activities are those that involve processing different products together with costly processes, rather than using independent methods to process each product. The chief characteristic of the joint product costing is that the cost of these different products results in an indivisible sum for all products, rather than in individual amounts for each product.

joint products examples

The expenses incurred up to split-off point is called joint cost. Joint cost is the cost incurred for all the products produced in the process. The cost accountant must first identify the joint products (hardwood and softwood) and the by-product (wood chips) produced in manufacturing.

What are the different types of joint costs?

Joint costs may include direct material, direct labor, and overhead costs incurred during a joint production process. A joint process is a production process in which one input yields multiple outputs.