JOINT PRODUCTS AND BY-PRODUCTS

I. Definition of terms
Joint Products Defined- are individual products, each with significant sales values, which are
produced simultaneously from the same raw and/or manufacturing process.

Joint products are two or more products produced together up to a split-off point where they
become separately identifiable. They cannot be produced by themselves.
Joint products incur common, or joint costs, (direct materials, direct labor and applied factory
overhead) before the split-off point. The split-off point is the point of production at which the
joint products can be individually identified and removed from the joint, or common process.

The joint products can then be sold or processed further. Costs incurred after the split-off point
for any one of the joint products are called separable costs or further processing costs. These costs
are already identified to each joint product.

By-product – a product of relatively small total value produced simultaneously with other
products.
Split-off point – the earliest point wherein joint products become separable individual units
Joint cost – costs that arises from the simultaneous manufacturing of products in a joint process

II. Characteristics of joint products

a. Joint products have a physical relationship that requires simultaneous common processing.
b. Manufacturing of joint products always has a split-off point at which separate products
emerge, to be sold as is or processed further.
c. None of the joint products is significantly greater in value that other joint products.

III. Industries which produce joint products

For example, a steak cannot be produced without also roasts, ribs, liver, hamburger, etc. Other
industries which produce joint products include
1) Chemicals 3) Mining
2) Lumber 4) Petroleum

IV. Characteristics of Main Products

a. The products must be the primary objective of the manufacturing operations.
b. Sales value must be relatively high if compared with the products resulting at the same time.
c. In case of joint products, the manufacturer must produce all of the products through a
common process.

V. Characteristics of By-product
a. The product is not the primary objective of the manufacturing operations.
b. Sales value of the by-product is comparatively low as compared with the sales value of the
main product.

VI. Accounting methods for Main products

Methods of Allocating Joint Costs to Joint Products:
1. Market value method – result in all products showing the same gross profit rate per dollar of sales
a. Product saleable at split-off – allocate joint cost based on aggregate total sales value of joint
products at split-off point
b. Product not saleable at split-off – allocate joint cost based on the aggregate net realizable
value (hypothetical market value) of joint products at split-off point
 2. Average unit cost method (Peanut butter costing) – it allocates joint costs based on the relative
units of each joint products; it assumes that all units, regardless of nature or type, which
undergone processing consumes equal amount of cost.
3. Weighted-average method – allocates joint costs based on points or factors set for each product
class representing size of the unit, difficulty to manufacture, time spent, difference in time spent
and materials used
4. Quantitative unit method - uses pounds, liters, meters, etc. to allocate joint costs to joint products

VII. Accounting methods for By-products

Methods of Accounting for By-Products:
1. No cost is allocated
a. Other income c. Deduction to cost of goods sold
b. Sales d. Deduction to total production costs
2. Cost is allocated (the joint product view)
a. Replacement cost method – the by-product purchase cost if it were to be purchased externally
is assigned the by-product and deducted from the joint cost
b. Market value/reversal cost method – the estimated recoverable value from the by-product is
assigned to the by-product.

In a nutshell Notes:

Treatment of By-product
1. Upon Sale/Realization - other income (NRV of by-product, Immaterial)
2. Upon Production (Inventoriable)
2.1. NRV Method = Joint Cost - (Est. Selling Price - Further Processing Cost -Cost of Disposal)
*It serves as a deduction & may also be deducted from the Further Processing Cost where that
by-product came from
2.2. Reversal Method
>Operating Income = Sales Value of Production - All Expenses
>Joint Cost = Manufacturing Cost - Further Processing Cost

Allocation of Remaining Joint Cost = Total Manufacturing Cost - NRV of by-product

1. Physical Measure
a. Physical
b. Units produced
c. Weighted ave of units produced
2. Monetary
a. Sales value @ split-off aka Relative Market Value method
(# of units produced x SP/unit @ split-off)
b. NRV @ split-off (used if problem is SILENT)
(Sales value @ split-off - Cost of disposal)
c. Approximated/Estimated NRV (Adjusted Market Value)
(Final Sales Value - Further Processing Cost - Cosst of Disposal)
*also used in computing /assessing CORRECT production process

Main Product = Joint Cost share + Traceable/Separable Cost

*If Simple, variance is MATERIAL (prorated using Applied OH)

*If problem states that by-product is inventoried or says "recognized at first production",
deduct it first from Joint Cost before allocating it to the Joint products.

MULTIPLE CHOICE CONCEPTS QUESTIONS

Instruction: Encircle the letter that corresponds to the letter of your choice.

1. The allocation of joint costs to individual products is useful primarily for purposes of:
a.determining whether to produce one of the joint products
b.inventory costing
c.determining the best market price
d.deciding whether to sell at the split-off point
e.evaluating whether an output is a main product or a by-product

2. The method used for the allocation of joint costs to products is important:
a.only in the minds of accountants
b.because profits will be affected when ending inventories change from the beginning of the period
c.because its validity for justifying prices before regulatory authorities is unquestioned
d.because profit margins differ when the relative sales value method is used
e.for income determination when inventories are nonexistent

3. In a joint production process, a by-product is also described as:

a.a simultaneously produced product of relatively low value
b.a form of main product with controllable production proportions
c.waste
d.products of low value recovered at the end of a production process
e. a product with no value contribution to help offset production costs

4. If a company obtains two salable products from the refining of one ore, the refining process should be
accounted for as a(n)
a. mixed cost process.
b. joint process.
c. extractive process.
d. reduction process.

5. Joint costs are allocated to joint products to

a. obtain a cost per unit for financial statement purposes.
b. provide accurate management information on production costs of each type of product.
c. compute variances from expected costs for each joint product.
d. allow the use of high-low analysis by the company.

6. Joint costs are allocated to which of the following products?

By-products Scrap

a. yes yes
b. yes no
c. no no
d. no yes

7. Joint cost allocation is useful for

a. decision making.
 b. product costing.
c. control.
d. evaluating managers' performance.

8. Joint costs are useful for

a. setting the selling price of a product.
b. determining whether to continue producing an item.
c. evaluating management by means of a responsibility reporting system.
d. determining inventory cost for accounting purposes.

9. Which of the following components of production are allocable as joint costs when a single
manufacturing process produces several salable products?
a. direct material, direct labor, and overhead
b. direct material and direct labor only
c. direct labor and overhead only
d. overhead and direct material only

10. Each of the following is a method to allocate joint costs except

a. relative sales value.
b. relative net realizable value.
c. relative weight, volume, or linear measure.
d. average unit cost.

11. Joint costs are most frequently allocated based upon relative
a. profitability.
b. conversion costs.
c. prime costs.
d. sales value.

12. When allocating joint process cost based on tons of output, all products will
a. be salable at split-off.
b. have the same joint cost per ton.
c. have a sales value greater than their costs.
d. have no disposal costs at the split-off point.

13. If two or more products share a common process before they are separated, the joint costs should be
assigned in a manner that
a. assigns a proportionate amount of the total cost to each product on a quantitative basis.
b. maximizes total earnings.
c. minimizes variations in unit production costs.
d. does not introduce an element of estimation into the process of accumulating costs for
each product.

Multiple Choice Problem Questions

Instruction: Encircle your answer and show all necessary solutions on a separate worksheet.

Use the following to answer questions 1-9:

Marjorie produces two products from a joint process: X and Z. Joint processing costs for this production
cycle are P8,000.
 Disposal
Sales price cost per Further Final sale
per yard at yard at processing price per
Yards split-off split-off per yard yard
X 1,500 P6.00 P3.50 P1.00 P 7.50
Z 2,200  9.00   5.00   3.00  11.25

If X and Z are processed further, no disposal costs will be incurred or such costs will be borne by the
buyer.

1. Using a physical measure, what amount of joint processing cost is allocated to X (round to the nearest
peso)?
a. P4,000 c. P5,500
b. P4,757 d. P3,243
2. Using a physical measure, what amount of joint processing cost is allocated to Z (round to the nearest
peso)?
a. P4,000 c. P5,500
b. P3,243 d. P4,757

3. Using sales value at split-off, what amount of joint processing cost is allocated to X (round to the
nearest peso)?
a. P5,500 c. P4,000
b. P2,500 d. P3,243

4. Using sales value at split-off, what amount of joint processing cost is allocated to Z (round to the
nearest peso)?
a. P5,500 c. P2,500
b. P4,000 d. P4,757

5. Using net realizable value at split-off, what amount of joint processing cost is allocated to X (round to
the nearest peso)?
a. P4,000 c. P2,390
b. P5,610 d. P5,500

6. Using net realizable value at split-off, what amount of joint processing cost is allocated to Z (round to
the nearest peso)?
a. P5,500 c. P2,390
b. P4,000 d. P5,610

7. Using approximated net realizable value at split-off, what amount of joint processing cost is allocated
to X (round to the nearest peso)?
a. P3,090 c. P4,000
b. P5,204 d. P2,390

8. Using approximated net realizable value at split-off, what amount of joint processing cost is allocated
to Z (round to the nearest peso)?
a. P2,796 c. P4,000
b. P4,910 d. P2,390
9. Which products would be processed further?
a. Only X c. Both X and Z
b. Only Z d. Neither X nor Z

Use the following to answer questions 10-15:

Aristea Company produces three products: A, B, and C from the same process. Joint costs for this
production run are P2,100.

Disposal
Sales price cost per Further Final
per lb. at lb. at processing sales price
Pounds split-off split-off per pound per pound
A   800 P6.50 P3.00 P2.00 P 7.50 
B 1,100  8.25  4.20  3.00 10.00
C 1,500  8.00  4.00  3.50 10.50

If the products are processed further, Aristea Company will incur the following disposal costs upon
sale: A, P3.00; B, P2.00; and C, P1.00.

10. Using a physical measurement method, what amount of joint processing cost is allocated to Product
A (round to the nearest peso)?
a. P700 c. P927
b. P679 d. P494

11. Using a physical measurement method, what amount of joint processing cost is allocated to Product B
(round to the nearest peso)?
a. P494 c. P927
b. P679 d. P700

12. Using sales value at split-off, what amount of joint processing cost is allocated to Product B (round
to the nearest peso)?
a. P700 c. P725
b. P416 d. P959

13. Using sales value at split-off, what amount of joint processing cost is allocated to Product C (round to
the nearest peso)?
a. P959 c. P700
b. P725 d. P416

14. Using net realizable value at split-off, what amount of joint processing cost is allocated to Product A
(round to the nearest peso)?
a. P706 c. P700
b. P951 d. P444

15. Using net realizable value at split-off, what amount of joint processing cost is allocated to Product C
(round to the nearest peso)?
a. P706 c. P444
b. P951 d. P700