Explain meanings of joint product and by-product. Describe methods of appointment of the joint production costs.

 Joint product: The products which are simultaneously produced using the same input, in a common process and each product carries considerably high sale value. Also, none of the joint products can be recognized as the major product. The raw material is processed in order to produce more than two products. A separation point called split-off point segregates the identity of the joint products from where they are either processed further or sold as they are Suppose that a company is trying to process diesel and derives paraffin from the refinery processing.

Here, both are joint products that are created with intent and have their own market value. While the process begins by using unrefined natural crude oil, the same is segregated into different sections to be made into other fuels and products apart from diesel in the process of distillation. Post the split off point, individual processes take care of the production of final joint products like paraffin etc. By-product: Any product that is the incidental result of the process of production is called a byproduct.

Derived from pre-existing material used to manufacture the main products, a by-product has a lower net realizable value as compared to the sale value of main product since its occurrence is not a priority but a consequence of the production process. The by-product may be processed further to increase its salable value or be sold off at scrap value depending on its usage.

Suppose that a company uses sugarcane to produce sugar, then sugar is the main product and molasses used to make paper and alcohol is a by-product of the process. When the process begins to crush sugarcane so as to derive the juice to process, the crushed waste is simply of no value to the sugar mill. Hence, this is sold off to paper mills and alcohol distillery at scrap value without further processing.

Physical Units Method of apportionment: This method is applied if the joint products are capable of being expressed in the some unit of measurement. Therefore, the basic of apportionment is the physical volume of units found at the point of separation.

Moreover, if any loss arising during processing is also apportioned on the same basis. If the units of measurement of joint products are heterogeneous, this method cannot be applied. This method has the assumption of all the joint products equally desirable and valuable.

Average Unit Cost Method of apportionment: This method is applied if all the joint products are common and inseparable. Moreover, the joint products are expressed in some common unit. Hence, total costs are assessed to calculate average unit cost and net profit for the total operation. It leads to same unit cost to all joint products.

If high-grade joint products are sold on the basis of average unit cost, the customers will be benefited and vice versa. The following formula is used to calculate average unit cost.

Survey Method of apportionment: This method is also known as points value method and weighted average unit cost method. The factors involved in the production and distribution of joint products taken into account before apportioning joint costs. 

Hence, this method is called as survey method. Costs are apportioned on the basis of percentage or points value assigned to the products according to their relative importance. The assignment of points is arbitrarily by management with the help of departmental heads and technical advisers.

Normally, the points are assigned by considering quantities of materials used, time taken, type of labour used, number of labour used, quality of the joint product, changes in the methods of production, selling price and the like.

Standard Cost Method of apportionment: Under this method, standard cost for each joint product are fixed. Then, the joint costs are apportioned on the basis of the standards thus fixed.

If an organization follows standard costing system, this method discloses the efficiency of the concerned process.

Contribution or Gross Margin Method of apportionment: This method helps the management to take a decision whether the concerned joint products have been further processed or not. 

The management decision depends upon the contribution margin of the concerned product.

Joint Cost Method of apportionment: In a manufacturing process, two or more main products as well as a number of minor by-products are produced. The joint cost is apportioned between the main products and by-products on a suitable basis.

There is no distinction between the joint products and by-products under this method. Accordingly, all the by-products are treated as joint products while apportioning joint cost between the joint products and byproducts.

Market Value Method of apportionment: Under this method, joint costs are apportioned on the basis of market value of joint products. The apportioning ratio is calculated on the basis of selling price of individual products. This method has two characteristics.

They are all joint products yield same rate of profit margin and cost of each of the joint products being based on selling price. 

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