Ppt on joint and by product by Hilal Mir Ktb.

1. PRESENTED BY:
HILAL AHMAD MIR KTB.
IMBA 2017

2. Concept of joint product and by-product
When two or more products are produced from the same
process, these products are termed as joint products i.e.
main product and by-product. Both the products are
important. However, the cost of main produced is generally
higher than the by product. Therefore, joint products refer
to products that are produced by a single process and
identifiable as individual products after some definite point.
The following are some of the definitions of joint and by
products. The following table presents some joint and by
product produced from different industries

3. Some of the definitions of joint and by products
are given below:
 According to character institute of management
accounts (Cima), London, "two or more products
separated in the course of processing, each having a
sufficiently high saleable value to, each recognition as
a main product,"
 Therefore Lang defines as "two or more products
separated in the course of processing operative,
usually required further processing. Each product
being in such proportion that no single product can
be designed as a major product."

4. The following are the features of joint products:
 Joint products are produced jointly from the same
process and they cannot be produced separately.
 Joint products are produced using identical raw
materials and common direct labour.
 These products pass through the same process up to
the separate point.
 After the splitting off the joint products, they required
further processing.
 All the joint product are of equal economic importance
and none of them can be considered as major product.

5. The relationship and differences between joint product, main
product and by product are given below:
A. Value: the goods having higher value is called the main
product and the goods having lower value is called the by
product, if they are produced from the same process and
materials. If the values of both the products are almost same,
they are called joint products.
b. Manufacturing objective: the product that is laid the first
priority during the production process is main product. On the
other hand, by product gets second propriety. If two or more
than two products get first proportions, they are called joint
product.
c. Production: the joint products are produced continually
whereas by products may raw not be produced continuously.

6. Joint cost
All the cost incurred before the split off point is known as joint
costs.
Further processing or sub-sequence cost
After the split off point joint products required additional
processing cost of every production that is known as further
processing cost.
Accounting for joint product
Accounting for joint products includes the distribution of the joint
cost to each of the joint products. The joint cost is the total cost
that is incurred before the split off point. After the split off point,
the products are separated into two or more and subsequence costs
begin. If joints costs are not properties and reasonably distributed
to different joint products, the cost of the joint products will not be
reasonable and their will not show the real valuation of inventory,
pricing of product and profit or loss on sale of different products.

7. Apportionment of joint cost
Following methods are commonly used for
apportionment of joint costs that takes place up to the
point of separation.
• Average unit cost method
• Physical unit method
• Survey method
• Contributions margin ration method
• Market value method

8. Average unit cost method
Under this method averages unit cost is ascertained by
divided joint cost by units of joint products. After
ascertaining the average units cost. The joint cost of each
product is calculated by multiplying thee average units cost
and the respective units of the products. This method can be
applied where processes are common and in separate for the
joint products and where the resultant products can be
experienced is same common unit.
Average unit cost = total joint cost/ total output units

9. Physical unit method
Under this method, joint costs are allocated to joint products on
the basis of the relative weight, volume ot other physical
measure. This method is not suitable where one product is gas
and another product is liquid. This method pre-supposes that
each joint product to equally valuable which will be rarely
possible in practical loss is borne by the joint products in the
ration of their output weight.
Survey method
In this method, joint products are ranked according to their
importance. All the major factor such as volume, selling price,
technical side, marketing process etc. which affect the cost are
ascertained by means of extensive survey. Point value or
percentages are given to each product according to their
importance. Joint costs are apportioned on the basis of total
points. Generally, these points or rations are reversed from time
to time depending upon the factors affecting production and
sales.

10. Market value method
This method is also known as sales value method and it is the
most popular and convenient method. Under this method the
joint costs are apportioned to the joint products on the basis of
selling price. This method has following two assumptions.
(i) All joint products were uniform profit margin
(ii) since joint costs are allocated on the basis of selling price if
selling price of joint products change, the joint costs should be
allocated to the joint products. Sales or market value of each
product may mean any of the following:
a. Market value at separation point
In this method, two methods are applied to allocate the joint
cost to each product.
h. Sales price basis: under this method, the joint costs are
apportioned to the joint products in the ration of selling price
per unit of each product.

11. i. Sales value method: in this, joint costs are apportioned to
the products in the ration of total sale value. Total sales value
is ascertained by multiplying the sales units of each product
with relative selling price.
b. Market value after further processing
Under this method first of all, total sales value of each
product after further processing is ascertained and further
processing cost is deducted from the total sales value of each
product in order to calculate the ratio in which the joint costs
are to be apportioned.
c. Net releasable value or reverse cost method
In this method, estimated net profit, selling and distribution
expenses and further processing cost are deducted from total
sales value of main products and net amount will be
ascertained. Total joint costs are apportioned on the basis of
ratio of net amount. This method is used; most of the
industries such as oil refineries lumber mills etc.

12. Accounting for by-products
Concept of by-product
In the manufacturing concern, the product what is produced
against the objective of the company is called main product
and the products that are produced with the main products
simultaneously are called by products.
For example, in oil refinery crude oil is processed but by-
products i.e. sculptures, bitumen, chemical fertilized are
obtained with the main product-refined oil. In coke ovens,
gas and tar are incidentally produced in addition to the main
product coke. Gas and tar are, therefore considered as by-
products. By-products may or may not be salable and
produced incidentally along with the main products. They
have less commercial value and produced in fewer quantities
as well. Some of the definitions of by product are given below.

13.  According to CIMA. "a product which is recovered
incidentally from the material used in the
manufacture of recognized main product, such a by-
product having either a net realized value or a usable
value which is relatively low in comparison with the
saleable value of the main products. By-product may
be further processed to increase their realized value."
 According to Theodore Lang, "by-product refers to
any saleable or usable or usable value incidentally
produced in addition to the main product."

14.  A by-product has the following characteristics
as mentioned above:
 a. By-products are produced incidentally along
with main product during the process.
 b. By-products have insignificant sales values.
 c. By-products may or may not required further
processing.
 d. Sometimes by-products are products from the
scrap or waste materials during a manufacturing
process.

15. Different between joint products and by-products

16. Accounting of By-products
There are two types of accounting of by-products, which are
given below:

17. a. Non-cost or sales method
Under this method, the costs of by-products are not considered, rather it
is assumed as income. The different ways of maintaining the records of by
product are given below.
1. Treating as miscellaneous incomes: in this method the sales value of
by-product is considered as negligible and that is show in credit of profit
and loss account considering as other incomes or miscellaneous income.
By-products, which are not sold, they will not appear in balance sheet as
stock, therefore vitiate the valuation of closing stock. This method is
inaccurate if there is a time lag between sales and production. Under this
method, there is a possibility that by-product may arise in one period but
may be accounted in another period and thus distort the profit of two
period.
2. Adding with sales of main product: in this method, the total cost of
main product and by-products are deducted from total sales of main
product and by-product. This method is appropriate when the value of
by-product is very small or the by-products are sold in the market in the
state in which they emerge from the main product. In this method too,
the value of by-product will not appear in the balance sheet.

18. 3. Deducting from the total cost: in this method the
sales values of by-product are deducted either form cost
of production or from total cost of sales. If the sales
value of by-product fluctuates, it affects the cost of main
product and may encourage concealing the inefficiencies
therein. In this method stock are values either on the
basis of total cost or cost of production.
4. Adjusting with selling and distribution costs: in this
method, the selling and distribution cost of by-products
are deducted from the sales value of by-products and
the remaining amount is either credited to process
account or deducted from total cost

19. 5. Adjusting with selling and distribution cost incurred after split
off points:
under this method, further processing cost required for the by-
products and selling and distribution cost are deducted form the total
sales value of by-products and the remaining value is credited to the
process account. Closing stock is valued at selling price and processing
the stock of such by-products. This method will not be appearing ate if
sales value of the by-products varies. The credits to the process account
of main product will vary according owing to the fact that credit to the
main product process account varies; inefficiencies in that process may
be concealed.
6. Reverse cost method:
in this method, profit of every by-product is given. The profit, further
processing cost and selling and distribution cost are deducted from the
market value of by-products and the remaining value is credited to the
main product

20. b. Cost method
There are three methods under this. They are mentioned
below
a. Opportunity or replacement cost method: this method
is used where by-products are utilized in the same
undertaking as materials for some other process. The
opportunity or replacement cost. i.e., cost which could have
been incurred had the by-products being used as materials
could have been purchased from the market. The process
account is credited with the value of by-products so
ascertained.
For example, in the production of a main product a by-
product X to another obtained. In a certain period 400 units
of by-product X are produced, which are transferred to
another department where they are consumed. If the by-
product were purchased from the market, they would be Rs.3
each.

21. b. Standard cost method: a standard cost may be fixed for
each product by averaging the cost figure of the previous
period and the process account credited with this standard
value. During the past five years records aver been kept for
the production costs of product C and product D which is a
by-product of product C. these records show the following
data in respect of product D.
c. Apportionment on suitable basis: if the total value of
by-products is considerable, their actual cost should be as
retained by apportioning the joint cost up to the point of
physical separate. The apportionment of joint cost is a
complicated affair and involves the use of iterate calculating.
The method is followed where by-products are process (i) to
dispose of waste material more profitable

22. Thanks