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 canners 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.
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