Joint product
| Joint product |
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| See also |
Joint product is one of two or more products which are made in enterprise from a common material or in common process. During all of the processing, or in a part of this, joint product cannot be recognize as a single product, because it is one of several products called - joint products[1].Joint product is made during single production process, which is called “joint process”[2]. Over the entire manufacturing process, joint product will be treated as joint products, until the “split-off point”, where these two or more products “become separate and identifiable”. In this moment company, decides about single products. Joint product can be sell, or transform into another form, and “sale to a different market”[3]. Examples of joint products are petrol, naptha, or diesel, which are made during oil refining processing from crude oil[4].
By-product and co-product
Joint product may be identified with a by-product, however it is a lot of differences between them. By-product is made accidentally, next to the main product, but joint product is made consciously, and is a part of the main product. The next distinction is in other economic importance. By-product is less important for company during the production, than the main producing product, and have lower economic importance. As opposed to by-products, every of joint products have the same economic importance. The second product which can be identified with joint products is co-product. In general co-product and joint product is the same, but there are some difference between them. Co-product, not always is made during one manufacturing process, and producer cannot control a number of co-products. Number of joint products is constant, and cannot be changed without accepting the amount of the rest of joint products[5].
Split-off point decisions
One of the main objective in business is to “maximize operating income”. Therefore, decision that company will make in split-off point is very important. There are two ways, which helps enterprise make a further decisions of joint products in split-off point[6]:
- The company can sell products at the split-off point, without any further processing - “if the incremental revenue is greater than the incremental costs of processing”.
- The company can transform products after split-off point, and sell them after this processing - “if incremental costs are greater than the incremental revenue”.
Joint costs
Before split-off point, it is hard to separate cost between each of joint products, because they are produced together. This costs are called “joint costs”. Only after split-off point, each cost of further processing can be assigned to a single specific product[7]. In accountancy, joint cost must be separate, to calculate “unit product cost”. It is necessary to prepare balance sheet and profit and loss account.There are several different methods, which are used in joint cost allocation[8]. These methods can be divided into two categories[9]:
- Methods based on “physical measures” (weight, volume etc.)
- Methods based on “allocating joint cost relative to the market values of the product”
Examples of joint cost allocation methods[10]:
- Physical Measure Method (Physical Unit Method or Quantitative Unite Method)
- Weight Output Method
- Market Value Method (Sales Value Method)
- Average Unit Cost Method (Simple Average Method)
References
- ↑ Needles B.E.,Powers M.,Crosson S.V., 2010, p.1199
- ↑ Bhar B.K, 2008, p.12.1
- ↑ Needles B.E.,Powers M.,Crosson S.V., 2010, p.1199
- ↑ Arora M. N., 2013, p.9.26
- ↑ Bhar B.K, 2008, p.12.1
- ↑ Needles B.E.,Powers M.,Crosson S.V., 2010, p.1999-1200
- ↑ Drury C., 2004, p.198
- ↑ Dutta M., 2004, p.12.6
- ↑ Drury C., 2004, p.198
- ↑ Dutta M., 2004, p.12.6-12.10
Footnotes
- Arora M. N., (2013),Cost Accounting, Vikas Publishing House
- Bhar B.K., (2008), Cost Accounting, Methods & Problems, Academic Publishers
- Drury C., (2004),Management and Cost Accounting, Cengage Learning EMEA
- Dutta M.,(2004),Cost Accounting: Principles And Practice, Pearson Education India
- McWatters C.S., Zimmerman J.L., (2015), Management Accounting in a Dynamic Enviroment, Routledge
- Needles B.E.,Powers M.,Crosson S.V., (2010), Principles of Accounting, Cengage Learning
Author: Kinga Dudek
