JOINT PRODUCTS AND BY

PRODUCTS
 WHAT ARE JOINT PRODUCTS?

-individual products with respective significant sales values

-produced simultaneously from the same raw materials and same
manufacturing process.

Example Product:
Soy Bean Oil and Soy Bean Meat – both produced from Soy Bean
 CHARACTERISTICS OF JOINT PRODUCTS?

1. Joint products have physical relationship that requires

simultaneous processing.

2. Manufacturing of Joint products always has a split-off

point at which separate products emerge to be sold as is or
processed further.

3. None of the joint products is significantly greater in value

that the other joint product.
 JOINT COSTS, SPLIT-OFF POINTS, SEPARABLE
COSTS

JOINT COSTS – consist of direct materials, direct labor and factory

overhead to produce joint products

SPLIT OFF POINT – the point at which 2 more products emerge

from processing one common direct material.

SEPARABLE COSTS – these are additional processing costs

incurred for the identifiable products after the split-off point.
 OUTPUTS OF A JOINT PROCESS

Joint Process produces more than one product line.

1. Joint Products – main products of the company

2. By Products/scrap – products that come out incidentally to
the joint process
Example: Dunkin’ Donut Munchkins out of doughnut holes
 OUTPUTS OF A JOINT PROCESS

Some products which are by-products before can become

main products (chicken wings – main products before
were chicken legs and chicken breasts)

Some may become by-products like chicken intestines,

feet, blood and head which were considered scrap before,
but now are by-products.
 CHARACTERISTICS OF MAIN PRODUCTS

1. Products are the primary objective of the

business/manufacturing operations.

2. Sales value must be high compared to other products

(by-products & scrap)

3. Manufacturer of joint products must

produce all of the products through a common process.
 CHARACTERISTICS OF BY- PRODUCTS

1. Product is not the primary objective of the

business/manufacturing operations.

2. Sales value is comparatively low to main product

 ACCOUNTING FOR JOINT PRODUCTS

Joint Product costs must be allocated to individual

products to determine:

1. Work in Process, end

2. Finished Goods Inventories
3. Cost of Goods Manufactured
4. Cost of Goods sold
5. Gross Profit
 ACCOUNTING FOR JOINT PRODUCTS

ACCOUNTING METHODS FOR MAIN PRODUCTS

1. Physical output method/Average unit cost method

2. Market value at split-off point
3. Net realizable value method (approximated market value
at split-off
 PHYSICAL OUTPUT METHOD

Under this method, quantity of output is the basis for allocating joint costs
via.

Formula: OUTPUT PER PRODUCT X TOTAL

TOTAL JOINT PRODUCT JOINT COST

Product A= 28,000 x 164,000 = P56,000

82,000
Product B= 43,000 x 164,000 = P68,000
82,000
Product C= 20,000 x 164,000 = P40,000
82,000
P164,000
 MARKET VALUE AT SPLIT-OFF METHOD

Most popular method – allocation of joint product costs on the basis of the
market value of the individual products.

Formula: Total Market Value of each product X TOTAL

Total Market Value of all products JOINT COST

Product A= 224,000 x 164,000 = P56,344

652,000
Product B= 238,000 x 164,000 = P59,865
652,000
Product C= 190,000 x 164,000 = P47,791
652,000
P164,000
 NET REALIZABLE VALUE METHOD

Under this method, any estimated additional processing cost and disposal costs
are deducted from the final sales value because some products are not yet salable
at split-off point.

Formula: Total NRV of each product X TOTAL

Total NRV of all products JOINT COST

Product A= 268,000 x 164,000 = P53,797

817,000
Product B= 309,000 x 164,000 = P62,027
817,000
Product C= 240,000 x 164,000 = P48,176
817,000
 ACCOUNTING FOR BY PRODUCTS

By-Products are produced incidental to processing of the

main products, allocation methods differ from those used in
main products.

2 Categories
1. By-products are recognized when sold
2. By-products are recognized when produced
 ACCOUNTING FOR BY PRODUCTS

Category 1: By-products are recognized when sold

-no income is recorded from them until they are sold.
-Net revenue from the by-product is computed by deducting
from actual sales the additional processing costs and marketing
and administrative expenses.
 ACCOUNTING FOR BY PRODUCTS

Category 1: By-products are recognized when sold

-Net Revenue may be presented as:
a. Other income
b. Additional sales revenue
c. A deduction from the cost of goods sold of the main
product
-Under this method, there is no setup to By-Product
Inventory account
 ACCOUNTING FOR BY PRODUCTS

Category 2: By-products are recognized when produced

-management allocates joint cost to the by-product
when net by-product income is significant
-Expected value of the by-product produced is shown on the
income statement as deduction from
the total production cost of the main products produced.
 ACCOUNTING FOR BY PRODUCTS

Category 2: By-products are recognized when produced

-Unit cost of the main product is reduced
-2 Methods
a. Net realizable value method – Expected sales value less
expected additional processing costs
and marketing and administrative expenses.
The resulting NRV of By-product is deducted from the
total production costs of the main product
 ACCOUNTING FOR BY PRODUCTS

Category 2: By-products are recognized when produced

-2 Methods
b. Reversal cost method - Expected sales value less expected
additional processing costs,
marketing and administrative expenses and
normal gross profit of the by-product
 ACCOUNTING FOR BY PRODUCTS

Category 2: By-products are recognized when produced

-2 Methods
b. Reversal cost method (Has BP Inventory account)
-Work backward from the gross revenue to arrive
At the estimated joint cost of the by-product at
Split-off point.
-When addt’l processing costs & normal gross profit
Of the by product are deducted from gross revenue = Estimated
cost of producing byproduct as SO point.