Accounts Notes: WHAT IS JOINT PRODUCT AND BY PRODUCT COSTING

Saturday 19 March 2011

WHAT IS JOINT PRODUCT AND BY PRODUCT COSTING

Methods of apportioning joint cost over joint products :

1) Physical unit method = Physical base to measure (i.e.) output quantity is used to
separate joint cost. Joint cost can be separated on the basis of ratio of output
quantity. While doing this wastage is also to be added back to find total quantity.

2) Average unit cost method = In this method joint cost is divided by total units
Produced of all products and average cost per unit is arrived and is multiplied
With number of units produced in each product.

3) Survey method or point value method = Product units are multiplied by points or
weights and the point is divide on that basis.

4) Standard cost method = Joint costs are separated on the basis of standard cost set
for respective joint products.

5) Contribution margin method = Cost are divided into two categories (i.e.) variable
and fixed. Variable costs are separated on unit produced. Fixed on the basis of
contribution ratios made by different products.

6) Market value method:-

a) Market value at the point of separation: Joint cost to sales revenue percentage
is found which is called as multiplying factor = Joint cost * 100
Sales Revenue
• Joint cost for each product is apportioned by applying this % on sales revenue
of each product.
• Sales revenue = Sales Revenue at the point of separation.
• This method cannot be done till the sales revenue at the separation point is
given.

b) Market value after processing: Joint cost is apportioned on the basis of total
sales Value of each product after further processing.

c) Net Realizable value method = Form sales value following items are deducted
i) Estimated profit margin
ii) Selling and distribution expenses if any included.
iii) Post split off cost
The resultant amount is net realizable value. Joint cost is apportioned on this basis.

Bi-product → Method of accounting

• Treat as other income in profit and loss a/c

• Net Realizable value of Bi-product is reduced from cost of main product.

• Instead of standard process, Standard cost or comparative price or re-use price is credited to joint process a/c.