Difference Between Joint Product and By-Product

Joint Product Vs By Product (উপজাত দ্রব্য)

There are many industries such as sugar industries, chemical industries, agricultural product
industries, etc., where more than one products of equal or differential importance are manufactured,
either concurrently or during the production of the main product. In this context, joint products and
by-products are often studied. Joint products are the products, which are produced simultaneously
(একসাথে), with the same raw material and process, and requires further processing to become a finished
product after they get separated.
By-product is nothing but the subsidiary product that emerges out, in the course of manufacturing of
the main product.
So, the main difference between joint product and by-product lies in the fact that whether the company
produced the product on purposely, or it emerged additionally, as a result of ongoing production.
Have a glance at the article to know, other differences amidst the two concepts.
Comparison Chart
BASIS FOR JOINT PRODUCT BY-PRODUCT
COMPARIS
ON
Meaning When the production of two or more The term by-product means a product
products of similar value, are made together which is incidentally produced, during
with same input and process, is called joint the processing operation of another
product. product
Economic Joint products have same economic value. Economic value of by-product is lower
Value than the main product.
Production Consciously Consequently
Input Raw material Waste or scrap of the main product
Further Required to turn the joint products into Not required.
Processing finished product.

Definition of Joint Product

Joint products are the products that are simultaneously produced with the same input, by a common
process and each possesses considerably high sale value that none of them can be recognized as the
major product. In joint products, when raw material is processed, it results in more than two products.
The production of joint products is performed consciously, by the management of the respective
organization, i.e. the management aims at producing all the products.
There are some industries where two or more products come out of a single raw material which is
equally important. These are referred to as joint products.
C.l.M.A. defines joint product as ‘Two or more products separated in the course of processing, each
having a sufficiently high saleable value to merit recognition as a main product’.
According to T. Lang, Joint products means “Two-or more products separated in the course of the
same processing operation, usually requiring further processing, each product being in such
proportion that no single product can be designated as major product”.
In short, we can say, when two or more products of equal importance are simultaneously produced,
then they are known as joint products

There is a separation point called as a split-off point, from where the products are separated and
identified. At this stage, either the products are sold directly or go for further processing, to turn out
as finished product. The amount incurred up to the split-off point is termed as joint cost.
Example: Common examples of the joint product are diesel, gasoline, lubricants, paraffin, etc. are
obtained as joint products, in the processing of crude oil.
 1. Joint Product refers to, two or more products,produced from common raw material, as well
as they go through the same manufacturing process, up to a certain point of production, after
which they are either sold or processed further.
2. Joint products have common saleable values, and that is why none of them can be considered
as the major product.
3. Intentionally production
4. Joint products are produced from the raw materials.

Definition of By-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(নির্মি) গ which are of minor importance, as
compared to the main product, are the by-product.
These are produced from the discarded(বানতল) material, i.e. scrap(ছাটাই করা পন্য) or waste(িষ্ট পন্য)of the
main process. The split-off point is the stage, at which the by-products are separated from the main
product. On the basis of market conditions, by product can be classified as:
1. Products sold in their original form.
2. Products that undergo subsequent processing before sale.
With the change in the economic conditions, the relationship between by-products and main product
also encounters change, as when the economic value of the by-product is greater than the main
product, then the by-product of such an industry becomes the main product and vice versa.
Example: Molasses is obtained as a by-product during the production of sugar, and while
manufacturing soap, glycerin is obtained as a by-product.
1. By-product alludes to the products of low usable value which are produced, concurrently with
the product having high usable value.
2. By-product’s saleable value is comparatively lower than the main product.
3. Unintentionally production
4. By-product, that is produced out of discarded material from the main process.
Examples
Suppose the company’s object is to produce two products Product A and Product B side by side, as
the initial process and input requirements of the two products are common, then these two will be
called as joint products.
Suppose a company basic aim is the production of Product A, but fortuitously B and C are produced,
during the manufacturing process, then B and C are termed as the by-product, as the company has no
intention to produce the same.
Conclusion
Both joint products and by-products are produced with the same raw materials and manufacturing
process, but they are different concerning the purpose. While the joint products are the primary results
of operations, the by-product is a secondary outcome of the process.

Material losses can be classified on the basis of:- 1. Wastage 2. Spoilage 3. Scrap 4. Defectives 5.
Obsolete Materials.
Material Losses in Cost Accounting: Normal and Abnormal Loss: Scrap, Spoilage and Defective
Materials
Classification # 1. Waste:
Waste is that portion of basic raw material which is lost in production processes and has no
recoverable value. Waste may be visible which can be seen e.g., ash, sand, dust, etc., and invisible
which is disappearance of a portion of a raw material e.g., shrinkage, evaporation, etc.
Types:
 i. Normal Waste – It arises because of causes inherent in the production. Normal waste is
unavoidable and uncontrollable e.g., evaporation, shrinkage.
Cost of normal waste is treated as cost of production and it is distributed over balance of material.
Thus per unit cost would increase.

ii. Abnormal Waste – It arises due to abnormal factors or causes not inherent in the production.
These factors are avoidable or controllable e.g., fire, theft, careless in handling, etc.
Cost of abnormal waste is not a part of cost of production, so it is charged to costing profit or loss
account.
Control of Waste:
Standard or norms should be fixed for each type of waste. The actual percentage of waste should be
compared with the normal percentage. Waste Reports should be prepared at regular intervals.
Particular care has to be taken to check abnormal waste. This can be done by holding regular meetings
with the foreman and his staff.

Accounting Treatment:
(a) Normal Waste – Waste within the normal limits should be distributed over good output. Thus, per
unit cost would be increased.

(b) Abnormal Waste – Waste beyond the normal limits should be transferred to costing profit and loss
account so as to avoid any fluctuations in the cost of production.

Classification # 2. Scrap:
Scrap is the incidental residue resulting out of manufacturing process. It has usually small money
value. Scrap is always visible e.g., cut ends of metals in engineering industries.

When the value of scrap is negligible, it is sold in scrap and net sales proceeds are credited to costing
P/L A/c. But when the value of scrap is important in case:

i. When several production orders are taken, the net sales proceed from sale of scrap is deducted from
factory overheads or material cost. Thus the overall cost of material or overheads is reduced.

ii. When scrap is related with a particular job, net sales proceeds from sale of scrap are credited to
that particular job only.
Scraps are of three types:

i. Legitimate Scrap – This type of scrap is unavoidable and such losses are bound to arise. These
losses, in most cases, are pre-determined or anticipated.

ii. Administrative Scrap – This type of scrap arises because of the administrative defects; for example
scrap resulting from obsolescence of design, inferior quality of materials, poor workmanship,
unsuitable machines etc. Such type of scrap is treated as abnormal because of abnormal reasons.

iii. Defective Scrap – This arises because of inferior quality of or bad workmanship

Control over scrap is possible by:

(i) Setting standards for scrap;
(ii) Determining the responsibility for scrap;
(iii) Keeping up proper records of scrap in the form of Scrap Reports.
Accounting Treatment:
The usual methods regarding treatment of scarp are as follows:

(i) The sale value of scrap is credited to costing profit and loss account as an abnormal gain. This
method is followed in those cases where the scrap is almost negligible. However, the method fails to
secure effective control over scrap is almost negligible. However, the method fails to secure effective
control over scrap as detailed records are not kept and scraps are not identified to jobs or processes.

(ii) The net sale proceeds (total sale proceeds from sale of scrap—selling and distribution costs) from
sale of scrap is deducted from the material cost or factory overhead. Thus, the overall cost of materials
or overheads is reduced by this method. The method fails to secure effective control over scraps
arising in processes or jobs. The method is suitable in case where several production orders are taken
in hand and it is not possible to segregate the value of scrap for each order.

(iii) The value realised from sale of scrap is credited to the particular job, process or operation. The
method has an advantage of identifying scarp with each operation, process or job.

Difference between Waste and Scrap:

i. Waste may be visible or invisible but scrap is always visible.

ii. Waste has no recoverable value but scrap has always recoverable value i.e., it can be sold.

Classification # 3. Spoilage:
Meaning- Spoilage is loss of not only material but also labour and overheads which are damaged in
manufacturing process. They cannot be further processed and thus are to be disposed off.

Spoilage may be of two types:

i. Normal Spoilage – It is the part of production process as it arises out of causes inherent in the
production process. Thus cost of normal spoilage is borne by good production units. Realizable value
of spoilage is credited to the account in which cost of spoilage is charged.

ii. Abnormal Spoilage – It arises due to causes which are not inherent in production. So it is
controllable though unexpected and it is charged to costing P/L A/C.
Spoilage differs from scrap.
Control of Spoilage:
The Inspector prepares a Spoilage Report on finding that the work has been spoiled. The actual
spoilage is compared with the standard or normal spoilage and remedial measures are taken for
preventing any abnormal spoilage.

Accounting Treatment:
(a) Normal spoilage – It is the spoilage which is the inherent result of the process and therefore
uncontrollable in the short run. The cost of such spoilage will be borne by good units.

(b) Abnormal spoilage – This spoilage is avoidable and controllable even in the short run. Its cost
shall, therefore, be charged to costing profit and loss account.

Salvage:
The material which is retrieved from the spoilage work is known as salvage. This material is usable
in production. Its value may be credited to the account to which a charge for spoilage is made.
Scrap vs. Spoilage:
(a) Scrap always arises in the process of material and spillage occurs only due to some defects in
material or production process.

(b) Scrap means loss of material only but spoilage includes not only loss of material but also of labour
and overheads.

(c) Scrap has (always) low value but spoilage value may vary from low to high. Low spoilage (badly
spoiled) may be sold like scrap. High spoilage may be sold as seconds.

Classification # 4. Defectives:
Defectives represent that portion of production which can be rectified as a finished product by the
help of more material, labour and overhead expenses. Defectives are the products which are not
according to the standards but they can rectify as a finished product by incurring rectification (rework)
cost.
Rectification Cost: The additional cost which is incurred to rectify a defective product.
Types:
i. Normal defectives arise due to common causes inherent in the production process. If they are
identical with a particular job then it is charged to that particular job. When defectives are not
identifiable with particular job then it should be charged to production overheads.

ii. Abnormal defectives arises due to the abnormal factors, they are transferred to costing P/L A/C.
Spoilage vs. Defectives:
The only difference is that spoilage can be rectified but defectives can be rectified by the help of
additional material, labour and overheads.
Material Losses in Cost Accounting – With Accounting Treatment and Control
Material losses do occur in every type of manufacturing organisation. These losses may be in the form
of waste, spoilage or defective work. There is no uniformity in the terminology and accounting
treatment of these items.

Control of Defectives:
When a work on inspection is found to be defective, the inspector makes out a “Defective Work
Report”. The cost of rectification is estimated and a decision is taken whether to see that defective
work remains within the standard limits.
Accounting Treatment:
(a) Normal defectives – Normal defectives arise on account of inherent nature of the manufacturing
process. Cost of rectification of such defectives should be charged to specific jobs or processes if
identification is possible, otherwise to the works overheads.

(b) Abnormal defectives – They arise on account of abnormal circumstances and, therefore, should
be taken to costing profit and loss account.

Obsolete Materials:
Obsolete materials are to be distinguished from slow-moving and dormant items. Materials having a
very low turnover ratio are known as slow-moving items. However, materials that have no immediate
demand are known as dormant materials. Obsolete items, on the other hand, are those for which there
is no demand at all owing to the fact that the finished product, in which they are used, is no longer
being produced. The reasons may be changed in fashion or the use of substitute materials.

Slow-moving and dormant materials need not be obsolete. A particular item may be slow-moving in
relation to other. Yet, it is still in demand for purposes of production. Similarly, there is the possibility
of the demand for dormant materials increasing with the increase in demand for the finished product
in which they are used. In the case of obsolete materials, however, the finished product itself having
gone out of production, the materials in question are no longer needed.

Further, with industrial progress, there is absolutely no possibility of production of the same article
for which the materials were formerly used. Obsolescence is thus linked to industrial progress.

Minimization of Loss:

Since obsolescence depends upon industrial progress, loss occasioned by some items of material
becoming obsolete cannot be avoided. It can only be minimised.

The steps to be taken in the direction of minimisation of loss are:

a. Changes in design should be brought to the notice of all the concerned personnel by the production
controller. He should also suggest methods of disposing of the obsolete items.

b. The purchase manager should anticipate changes in design. He should also find out the stock of
materials and components which have become obsolete.

c. The store-keeper should send reports of slow-moving items regularly to the sales and production
departments and seek information regarding alternative uses of such items.
d. Items which have been superseded or, have become surplus to current requirements should be made
a note of on stock verification sheets.

e. Separate code number should be given to such items, and they should be kept separate from the
other active items.

f. A separate ledger should be maintained for such items by the store-keeper and particulars such as
the date on which they have become obsolete, the date of receipt into the stores and their value should
be entered therein.

g. Materials which have become obsolete should be used by the same plant for some other work order.

h. If possible, the items should be modified to meet the current requirement.

i. If the obsolete items cannot be modified, they should be scrapped and sold by auction.

J. If there is no scrap value, they should be discarded.

k. Whether scrapped or discarded, the loss should be written off the abnormal loss account, and any
scrap value received should be credited to this account.

I. The incidence of obsolescence can also be minimized by exercising effective control over the
different stock levels of materials and avoiding excessive stock.