Joint Products and By-products

In a common manufacturing process if the output is more than one type, the resulting products are called

a) Joint products

b) By products

There is no precise criterion to distinguish between joint products and by-products. It could be made based on several factors like the company’s policy, sales value, market demand, profitability etc. The most commonly used criterion is ‘sales value’.

When the products manufactured in a common process have substantial sales value they are called Joint Products and when their sales value is relatively low compared to the main products they are called By-products. It may be noted that if the sales value is insignificant the products are treated as Scrap and not By-products. With increase in demand and market value By-products may be re-classified as Main products.

Split-off point

In the manufacture of joint products, a common input is processed in the joint process. The point were the products are recognized separately is called the ‘split off point’. Joint products are either saleable in the market at the split off stage itself or they are further processed before being sold. Further processing is done separately for the products.


Apportionment of Joint Cost

It is essential to apportion the joint cost for computing the total cost of the joint products. There are various methods used in apportionment of joint cost. Some of the widely accepted methods are below

a) Based on Output

b) Based on Sales Value

c) Based on Net Realizable Value

(Net Realizable Value = Sales Value after further processing – Further Processing Costs)


Dr. PQR Labs manufactures two products ‘Calocil’ and ‘Calopol’ in a joint process incurring $ 54,000 up to the split off point. Following details are available at spit off point

Product 1 – Calocil

Quantity (Kgs) 200

Selling Price per kg ($) 460

Product 2 – Calopol

Quantity (Kgs) 70

Selling Price per kg ($) 200

Calculate the share of joint cost of the products based on

i) Output ii) Sales value at split off point

Joint cost apportionment (Output basis)

Product Quantity (Kgs) Share of joint cost ($)
Calocil 200 $40,000 (54000 /270 x 200)
Calopol 70 $14,000 (54000 / 270 x 70)
Total 270 $54,000

Joint cost apportionment (Sales Value basis)

Product Quantity (Kgs) Selling Price per kg ($) Sales Value ($) Share of joint cost($)
Calocil 200 460 94,000 $47,000 (54,000/108,000 x 94,000)
Calopol 70 200 14,000 $7,000 (54,000/108,000 x 14,000)
Total 270 108,000 $54,000

Example Problem:

A chemical manufacturing company makes three joint products (Rolta, Volta and Zolta) from the same common process. The following process account relates to the monthly results of the common process:

Common Process Account

Litres $ Litres $
Materials 100,000 500,000 Normal loss 15,000 6,000
Conversion costs: Output – Rolta 25,000 ?
Variable 200,000 Output – Volta 15,000 ?
Fixed 360,000 Output – Zolta 45,000 ?
Total 100,000 1,060,000 Total 100,000 1,060,000

Each one of the products can be sold immediately after the common process, but each one of them can be further processed individually before being sold. The following further processing costs and selling prices per litre are expected:


The company uses Net Realizable Value method to apportion joint costs. Calculate the value of output for all the three products. Also determine an optimal process plan for the above.


Step 1: Calculation of Joint cost

Materials 500,000

Variable Conversion Costs 2,00,000

Fixed Conversion Costs 3,60,000

Total 1,060,000

Less: normal losss 6,000

Net Joint cost 1,054,000

Step 2: Apportionment of joint cost (Net realizable value method)

Product Output (Lts) Selling price after

further processing

$/ltr (A)

Further variable

processing cost

$/ltr (B)

Net realizable


$/ltr (A – B)

Total NRV

(Output x NRV per ltr)

Rolta 25,000 8.10 1.75 6.35 158,750
Volta 15,000 6.35 1.00 5.35 80,250
Zolta 45,000 7.00 0.60 6.40 2,88,000
Total 85,000 5,27,000
Product Total NRV Share of joint cost
Rolta 158,750 317,500 (158750 / 527000 x 1054000)
Volta 80,250 160,500 (80250 / 527000 x 1054000)
Zolta 2,88,000 576,000 (288000 / 527000 x 1054000)
Total 5,27,000 1,054,000

Value of output

Rolta – 317,500

Volta – 160,500

Zolta – 576,000

Optimal Process Plan:

To determine the optimal process plan (i.e. which products need to be sold at the end of common process and which should be sold after further processing) we need to compare the selling price of the products at the end of common process and net realizable value of the products.

The comparison for the above case would be as below

Product Net realizable Value $/ltr Selling price after

common process $/ltr

Rolta 6.35 6.20
Volta 5.35 5.10
Zolta 6.40 6.90

Methods for Accounting by-products

The following are some of the methods used for accounting the by-products

i) Credit the sale value of by-product to costing Profit and Loss

ii) Credit the sale value of by-product to Joint Process account

iii) Reverse cost method (Sales value of by product Less estimated profit and selling expenses is credited to Joint process account


  1. Abuzar Qazi says:

    Calculations Mistake found like 460*200=92000 not 94000 and in the second example NRV calulation mistakes found for Volta and Zolta

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