Joint Products and By-Products

Things You Must Know

Cost Accounting

Joint Process:
A single process that results in simultaneously produced products
(More than one product is produced from the same process)

Joint Products:
More than one product manufactured through a single process

By Products/Scrap:
Incidental outputs of a joint process that are sold

Very low sales value

The sales price alone does not justify the cost of the joint process

By Products typically have a higher sales value than scrap

Scrap is usually leftover materials that may be sold

Has no sales value and must be disposed of

Split-Off point:
The point where individual products are first identified
Joint products can be sold to customers at the split-off point

Joint Costs:
The material, labor, and manufacturing overhead incurred in the joint process

Joint cost is allocated at the split off point to joint products only

Costs after split-off are allocated directly to each separate joint product

By Products and Scrap Sales
The net realizable value of by-products or scrap that is normally sold is subtracted from total joint costs before allocating joint costs to joint products.

Further Processing Costs:
Costs incurred to process further when incremental revenue is greater than incremental cost to process further

Allocating Joint Costs to Joint Products:

Physical Measurement Allocation:
Chose a pro-ration quantity and allocate based on percentage of total quantity
(tons, # of units, gallons, square feet, etc.)

Cost Per =

         Total Cost      
Total Quantity Base

$ Cost per x quantity related to that product = cost allocated to that product


Add up the quantity used for each and compute a % of the total and then multiply the % for each times the total joint costs

Monetary Measure Allocation:
Use a calculated dollar value

Managers must be able to estimate the selling price for each joint product

Sales Value at Split-Off:
Units sold x Sales price at split-off = Sales Value

Sales Value for Each
   Total Sales value       = % allocated

Net Realizable Value:
Use when all joint products are marketable at split-off

    Sales price at split off
– Cost to sell/dispose
= Net Realizable Value

NRV for the product
Total NRV for all products = % allocated to product

Approximate Net Realizable Value:
Use when all products are not sold at split-off

   Final Sales Price
– Costs to sell or dispose
– Incremental processing
= Approximate Net Realizable Value

Approx. NRV for the product
Total Approximate NRV

= % allocated to product

Entries to Record Joint Product Costs:

WIP: Joint Process
           Raw materials
           Wages payable
           Accumulated depreciation

Allocate Joint Costs:

WIP: Prod. 1
WIP: Prod. 2
           WIP – Joint Processing

Add costs for further processing

WIP: Prod. 1
WIP: Prod. 2
           Raw materials
           Wages payable
           Accumulated depreciation

Finished Goods Transferred
           WIP: (each product has own account)

Sell the FG

Accounting for By-Products/Scrap
no added processing costs:

Net Realizable Value Approach for Scrap – indirect method:

Additional Processing Costs to get saleable:

           Cash (added costs)

Sell – takes 3 journal entries

           CGS (net $ received)

Scrap/By Product
           WIP (full price)

           Scrap /By Product (full price)

Results in reduction to CGS for the net amount received

Net Realizable Value Approach for Scrap – direct method:

Joint cost is reduced by net realizable value

           WIP- Joint (or CGS)

Realized Value Approach for scrap:

No value is recognized until the product is sold

Costs are debited to WIP, which later becomes a higher CGS

Use when scrap is typically sold.

Sales price is credited to Other Revenue when scrap is not typically sold

Some books show the realized value of scrap as a reduction to CGS
(check your notes)