Joint Products and Joint Product Cost:
Learning Objectives:
- Define and explain joint product and
joint product cost
Definition and Explanation of Joint Products:
Joint products are produced
simultaneously by a common process or series of processes, with each product
processing more than a nominal value in the form in which it is
produced. The definition emphasizes the point that the manufacturing process
creates products in a definite quantitative relationship. An increase in one
product's output will bring about an increase in the quantity of the other
products, or vice versa, but not necessarily in the same proportion.
Definition and explanation of Joint Product Cost:
A joint product cost cay be defined as that cost
which arises from the common processing or manufacturing of products
produced from a common
raw material. Whenever two or more different products
are created from a single cost factor, a joint product cost results. A joint
cost is incurred prior to the point at which separately identifiable
products emerge from the same process.
Example:
For example, the production of coke, for which
coal is the original
raw material. In addition to coke as its major product, the process
produces sulfate of ammonia, light oil, crude tar and gas. The greater
quantity of gas is not sold but is used to fire the coke ovens and the
boilers in the power plant. The coke ovens are the
split-off point for cost
assignments. The cost of each product consists of a pro rata share of the
joint cost plus any separable or subsequent costs incurred in order to put
the products into saleable condition.
COKE AND ITS ASSOCIATED PRODUCTS
COAL
(ORIGINAL RAW MATERIAL) |
→ |
COKE OVEN
(SPLIT-OFF
POINT) |
→ |
COKE
(MAJOR PRODUCT) |
Plus Separable cost
→ |
COKE |
| |
|
|
|
| → |
SULFATE OF AMMONIA |
Plus Separable cost
→ |
SULFATE OF AMMONIA |
| → |
LIGHT OIL |
Plus Separable cost
→ |
BENZOL |
| → |
CRUDE TAR |
Plus Separable cost
→ |
TAR |
| → |
COKE OVEN GAS |
Plus Separable cost
→ |
GAS |
|
