Joint Products and by Products

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
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.
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
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.

-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

-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

-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.

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JOINT PRODUCTS AND BY

-individual products with respective significant sales values

1. Joint products have physical relationship that requires

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

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

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

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

SEPARABLE COSTS – these are additional processing costs

Joint Process produces more than one product line.

1. Joint Products – main products of the company

Some products which are by-products before can become

Some may become by-products like chicken intestines,

1. Products are the primary objective of the

2. Sales value must be high compared to other products

3. Manufacturer of joint products must

1. Product is not the primary objective of the

2. Sales value is comparatively low to main product

Joint Product costs must be allocated to individual

1. Work in Process, end

ACCOUNTING METHODS FOR MAIN PRODUCTS

1. Physical output method/Average unit cost method

Formula: OUTPUT PER PRODUCT X TOTAL

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

Formula: Total Market Value of each product X TOTAL

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

Formula: Total NRV of each product X TOTAL

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

By-Products are produced incidental to processing of the

Category 1: By-products are recognized when sold

Category 1: By-products are recognized when sold

Category 2: By-products are recognized when produced

Category 2: By-products are recognized when produced

Category 2: By-products are recognized when produced

Category 2: By-products are recognized when produced

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