Characteristics of Joint Products and Joint Cost:
Many products or services are linked together by physical relationships which necessitate simultaneous production. To the point of split-off or to the point where these several products emerge as individual units, the cost of the products forms a homogeneous whole.
The classic example of joint products is found in the meat packing industry, where various cuts of meet and numerous by products are processed from one original carcass with one lump-sum cost. An other example of joint products manufacturing is the production of gasoline, where the derivation of gasoline inevitably results in the production of such items as naphtha, kerosene, and distillate fuel oils. Other examples of joint products manufacturing are the simultaneous production of various grads of glue and the processing of soybeans into oil and meal. Joint product costing is also found in industries that must grade raw materials before it is processed. Tobacco manufacturers (except in cases where graded tobacco is purchased) and virtually all fruit and vegetables caners face the problem of grading. In fact, such manufacturers have a dual problem of joint cost allocation:
- Materials cost is applicable to all grades
- Subsequent manufacturing costs are incurred simultaneously for all the different grads.
The chief characteristic of the joint cost is the fact that the cost of these several different products is incurred in an indivisible sum for all products, rather than in individual amounts for each product. The total production cost of multiple products involves both joint cost and separate, individual products cost. These separable product costs are identifiably with the individual product and, generally, need no allocation. However, the joint production cost requires allocation or assignment to the individual products.
You may also be interested in other articles from “by products and joint products” chapter
- Difficulties in costing by products and joint products
- Joint Products and Joint Product Costs
- Characteristics of Joint Products and Cost
- By Products
- Recognition of Gross Revenue
- Recognition of Net Revenue
- Replacement cost method
- Market value method or reversal cost method
- The market or sales value method, based on the relative market values of the individual products.
- The quantitative or physical unit method, based on some physical measurement unit such as weight, linear measure, or volume.
- The average unit cost method.
- The weighted average method, based on a predetermined standard or index of production.
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