Joint Products: Definition

Joint products refer to two or more products that are created together. This article offers an explanation, examples, and accounting techniques for costing such products.

Joint Products: Explanation

Joint products are produced simultaneously by a common process or series of processes, with each product possessing more than nominal value in its produced form.

This definition emphasizes the point that the manufacturing process creates products in a definite quantitative relationship. An increase in one product’s output will increase the quantity of the other products, or vice versa, but not necessarily in the same proportion.

Joint product costing constitutes the cost that arises from the common processing or manufacturing of products produced from a common raw material. The joint product cost results from the creation of two or more different products from a single cost factor.

A joint cost is incurred before the point at which separately identifiable products emerge from the same process.

Characteristics and Examples

Physical relationships that necessitate simultaneous production serve as a link between numerous products. To the point of split-off or the point where these products emerge as individual units, the cost of the products forms a homogeneous whole.

The classic example of joint products is found in the meatpacking industry, where various cuts of meat and by-products are processed from one original carcass with one lump sum cost. 

The chief characteristic of the joint product costing is that the cost of these different products results in an indivisible sum for all products, rather than in individual amounts for each product.

The total production cost of multiple products involves both the joint cost and individual product costs. 

These separable product costs are identifiable with the individual product and generally need no allocation. However, the joint production cost requires assignment to the individual.

Frequently Asked Questions

Do joint products have to be similar?

No. Joint products need not possess the same value. If the total value of the joint product is significant, then additional analytical detail can improve decision making by management. For example, if two finished goods are produced from one process then the joint Cost Accounting method will provide more insight into factors that affect the profitability of the individual products than if all costs were considered to be product costs.

What is a joint cost?

A joint cost is the cost of two or more products processed in one batch. Joint costs are incurred at the outset, even if each product possesses some value when it emerges from the process.

What is a joint production activity?

Joint production activities are those that involve processing different products together with costly processes, rather than using independent methods to process each product.

What is a consequential cost?

Consequential costs are the indirect overhead costs that arise from a joint production activity in which a variety of products result from one process. For example, in the case of assembly line manufacturing, many machines and work stations are used to complete multiple products produced on a single assembly line.

What is a cost pool?

The cost pool defines a single activity or type of activity, in which different products emerge from one production process. The costs that are included in the costing of joint products are attributed to each product group or class on some reasonable basis; this will result in an allocation base for the total associated cost. If the allocation base is larger than the amount for a single product, then there will be a difference which is allocated to each individual product as a separate unit.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

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