METHODS OF COSTING: 
                                      
                                  JOINT 
                                    & 
                               BY-PRODUCTS 
                                  (THEORY) 
                                      
                                      
                                      
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                            PAPER: 4.1 COST ACCOUNTING  
                             FOR B.COM SEM: IV SEC: B 
                                    BY 
                                SHRUTI GULATI 
                                      
          
          
          
          
          
          
          
                 According to Shukla, Grewal and Gupta, “Joint products represent two or more products 
                 separated in the course of the same processing operations, usually requiring further 
                 processing, and each product being in such proportion that no single product can be 
                 designated as a major product”.  
                 By-products have been defined as “any saleable or usual value incidentally produced in 
                 addition to the main product”.  
                        Thus, the main difference between by-products and joint product is that in case 
                         of the former, generally no extra expense is to be incurred, whereas in the case of 
                         the latter additional expenditure will be necessary before the products can be 
                         sold.  
                        Joint products are produced simultaneously by a common process or series of 
                         processes, with each product processing more than a nominal value in the form 
                         in which it is produced.  
                        The definition emphasizes the point that the manufacturing process creates 
                         products in a definite quantitative relationship.  
                        An increase in one product’s output will bring about an increase in the quantity 
                         of the other products, or vice versa, but not necessarily in the same proportion. 
                  
                 JOINT PRODUCT COST 
                 Joint product cost cay be defined as that cost which arises from the common processing 
                 or manufacturing of products produced from a common raw material. Whenever two or 
                 more different products are created from a single cost factor, a joint product cost 
                 results. A joint cost is incurred prior to the point at which separately identifiable 
                 products emerge from the same process. 
                       Example: 
                 For example, the production of coke, for which coal is the original raw material. In 
                 addition to coke as its major product, the process produces sulfate of ammonia, light oil, 
                 crude tar and gas. The greater quantity of gas is not sold but is used to fire the coke 
                 ovens and the boilers in the power plant. The cokeovens are the split-off point for cost 
                 assignments. The cost of each product consists of a pro rata share of the joint cost plus 
                 any separable or subsequent costs incurred in order to put the products into saleable 
                 condition. 
                  
                 COSTING OF JOINT PRODUCTS  
                        Costing for joint products implies the assignment of a portion of the joint cost to 
                         each of the joint product.  
                        Unless the joint costs are properly and reasonably apportioned to different joint 
                         products produced, the cost of joint products will vary considerably and this will 
                         affect valuation of inventory, pricing of products and profit or loss on sale of 
                         different products.  
                        Therefore, the basic problem in respect of joint products is that of apportioning 
                         the joint cost. Various authors have suggested various methods of joint products.  
                          
                        These methods are as follows:  
                          
                     (i)     Average Unit Cost Method:  
                             Average Unit cost is the most simple method. The total costs are assessed, 
                             yielding an average unit cost with one net profit for the total operation. This 
                             method can be applied where processes are common and inseparable for the 
                             joint products and where the resultant products can be expressed in same 
                             common unit. This means that all joint products have the same unit cost and, 
                             therefore, if price fixing is based on cost of various products which may be of 
                             different grades or quality will be sold at the same unit price, resulting in a 
                             customer’s price advantage in grades. Moreover, where the end products 
                             cannot be expressed in some common unit, this method breaks down.  
                              
                     (ii)    Physical Unit Method:  
                             Under this method, a physical base such as raw materials weight, linear 
                             measure volume etc., is applied in apportion pre-separation point costs to 
                             joint products. This method presupposes that each joint product is equally 
                             valuable, which is probably not the case in practice.  
                                 
                       (iii)    Survey Method:  
                                Under this method, all the important factors such as volume, selling price, 
                                technical aspects, marketing process etc., affecting costs are ascertained by 
                                means of extensive survey. Point’s values or percentages are given to 
                                individual products according to their relative importance and costs are 
                                apportioned on the basis of total points. These ratios should be revised from 
                                time to time depending upon the factors affecting production and sales. 
                                 
                       (iv)     Market Value Method:  
                                This method of apportioning joint costs to products on the basis of relative 
                                value is the most popular and convenient method. The joint costs are split in 
                                the ratio of selling price of individual products 
                                 
                                 
                                 
                                                                 Fig: Joint and By products                                      
                                BY PRODUCT COST 
                                         The term by-product is also known as “Minor Product.”