Joint Product Definition and Methods of apportionment of Joint Cost
All the CA Intermediate Students will be able to get understanding about joint products and methods of apportionment of the joint cost of processing the joint products. In this article, I have covered just about joint products.
Meaning of Joint Products:
In the manufacturing industries, many different kinds of products are manufactured. Some of them give two or more products of same or no importance or less importance. These products are products are produced whether simultaneously or in course of processing of the main product.
Like manufacturing of sugar, various chemical processing industries, do have such type of output with the main product.
Such type of industries ends up with the problem of valuation of the stock, determination of income pricing of product manufactured. Determination of income to be generated from such products. The problem is deciding stage of immediately or to further process the same as the joint product and sale it.
The various problems relate to
- Apportionment of joint cost of different products
- Aspects other than mere apportionment cost incurred up to point of separation.
The concept of joint product:
Joint products are the two separate products while processing a single input of raw material which requires a further process. No product can be considered as the main product, out of two or more joint products.
In other words, we can say that two or more product produced in a single processing operation may be of equal importance, which have a significant sale value of its own.
Example: Oil industries, gasoline, fuel oil etc.
There is a term coproduct is used as a synonym for joint products. But co-products are defined as two or more products which are contemporary but do not emerge necessarily from the same material in the same processes like rice and sugarcane are produced in two separate forms with separate processing of cultivation are co-products.
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Method of apportionment of joint cost to joint products:
Apportionment of joint cost to joint products is very important as this affects
- Inventory valuation
- Product price
- Profit loss on sale of the product
Methods used in general for apportionment of total process cost to the point of separation over joint products as under:-
- Physical unit method:
The basis of this method basically depends in the case where units of joint products can be measured in same units. If same can be done than the joint cost of such joint product will be apportioned on a physical basis.
Physical basis means weight, numbers etc. in other words what we mean to say is if the output of the joint product is expressly measurable in no. of units or weights are clearly defined than joint cost can be apportioned on basis of no of output unit up to separation point.
An oil manufacturing industries manufacture oil and oil cake jointly using 5000 tons of oil @ 1100 per ton into a common process. Product outputs are as under:
Oil 600 ton
Oil cake 500 ton
Now in the above case, total cost up to separation point will be divided by a total number of output of both the joint products and multiplied by one of the joint products.
- Net realizable value:
In the following way net realizable value is determined:
Sales value (units after processing X Selling price) XXX
Less: Profit Margin XXX
Less: Selling and Distribution expenses XXX
Less: Post Split of Point cost XXX
Net Realizable Value XXX
All above information will be given in the question may be hidden and we will have to find it out if the question will directly ask for using this method or it is apparent from the question to use only this method.
- Use of the technical method
This method is used when both above methods results do not match with the input and resources used for joint products or net realizable value is not available instantly.
There are some more different methods too
- Market value at the point of separation: This method is used at the split of point joint product. This method cannot be used if the market value at the split of the point is not available.
- Market Value after further processing: In this method, the joint cost will be apportioned in the ratio of total sales values of joint products.
I believe that above my article about joint product and methods of apportionment of joint cost to joint products will help all CA Intermediate student to build a basic understanding of the topic.
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