Joint and By-products

AGENA MARIE SAN PABLO, CPA

 Joint Products
Joint products are individual products; each with
with significant values, which produces
simultaneously from the same raw materials and
same manufacturing process.
Characteristics of joint products
1. Joint products have a physical relationship that
requires simultaneous common processing.
2. Manufacturing of joint products always has a split-off
point at which separate products emerge to be sold as is
or processed further.
3. None of the joint products is significantly greater in
value than the other joint products.
 Joint Process
A joint process produces more than one product line.
 Outputs of a Joint Process
1. Joint Products
Joint products are the primary outputs of joint a
joint process, each product has substantial revenue
generating ability.

These are also called the main products.

 Outputs of a Joint Process
2&3. By-products and scraps
These are those that come out incidental to the
process.

Both are salable but their sales value alone would

not be sufficient for management to justify under taking
the joint process.
 Accounting for Joint Products
Four methods are commonly used to allocated joints
costs:

1. Physical output method

2. Sales value at split-off point
3. Net realizable value at split-off point
4. Approximated net realizable value at split-off point
 Physical Output Method
This method is based on volume.
Illustration
Three of Easyhoon Company’s products are manufactured in a joint process
first before being individually processed further. Common cost shared by the
production of the three products for the current month totaled P300,000.
More information are as follows:

Product Units Sales Price Disposal cost Further processing Final sales Units
produced @SOP per unit@SOP costs per unit price per gallon sold
Lima 2,000 P50 P5 P10 P80 0
Golf 3,000 P60 P5 P15 P85 0
Mike 5,000 P45 P5 P5 P70 4,000

How much is the joint cost allocated to Product Lima, Golf, and Mike if the physical
method is used?
 Sales value at split-off point
Units proced x SP/u = Sales Value@SOP then pro-rate the
joint/common cost
Illustration
Three of Easyhoon Company’s products are manufactured in a joint process
first before being individually processed further. Common cost shared by the
production of the three products for the current month totaled P300,000.
More information are as follows:

Product Units Sales Price Disposal cost Further processing Final sales Units
produced @SOP per unit@SOP costs per unit price per gallon sold
Lima 2,000 P50 P5 P10 P80 0
Golf 3,000 P60 P5 P15 P85 0
Mike 5,000 P45 P5 P5 P70 4,000

How much is the joint cost allocated to Product Lima, Golf, and Mike if the sales value at
split-off point is used?
 Net realizable value at split-off point
= Units produced x (SP/v@SOP - DC/u@SOP)
= NRV@SOP pro-rate the joint/common cost
Illustration
Three of Easyhoon Company’s products are manufactured in a joint process
first before being individually processed further. Common cost shared by the
production of the three products for the current month totaled P300,000.
More information are as follows:

Product Units Sales Price Disposal cost Further processing Final sales Units
produced @SOP per unit@SOP costs per unit price per gallon sold
Lima 2,000 P50 P5 P10 P80 0
Golf 3,000 P60 P5 P15 P85 0
Mike 5,000 P45 P5 P5 P70 4,000

How much is the joint cost allocated to Product Lima, Golf, and Mike if the net realizable
value at split-off point is used?
Approximated net realizable value at split-off point
= Units produced x (FSP - DC - FPC)
= Approximated NRV@SOP then pro-rate the
joint/common cost
Illustration
Three of Easyhoon Company’s products are manufactured in a joint process
first before being individually processed further. Common cost shared by the
production of the three products for the current month totaled P300,000.
More information are as follows:

Product Units Sales Price Disposal cost Further processing Final sales Units
produced @SOP per unit@SOP costs per unit price per gallon sold
Lima 2,000 P50 P5 P10 P80 0
Golf 3,000 P60 P5 P15 P85 0
Mike 5,000 P45 P5 P5 P70 4,000

How much is the joint cost allocated to Product Lima, Golf, and Mike if the approximated
net realizable value at split-off point is used?
Illustration
B Company produces four solvents from the same process: Crystal, Black,
Clear, and Silver. Joint product costs are P9,000. (Round all answers to the
nearest peso)
Product Barrels Sales Price Disposal cost Further processing Final sales
@SOP per unit@SOP costs per unit price per gallon
Crystal 750 P10 P6.50 P2 P13.50

Black 1,000 P8 P4 P2.50 P10

Clear 1,400 P11 P7 P4 P15.50

Silver 2,000 P15 P9.50 P4.50 P19.50

How much is the joint cost allocated to Product Crystal, Black, Clear, and Silver if the
physical output method is used?
Illustration
B Company produces four solvents from the same process: Crystal, Black,
Clear, and Silver. Joint product costs are P9,000. (Round all answers to the
nearest peso)
Product Barrels Sales Price Disposal cost Further processing Final sales
@SOP per unit@SOP costs per unit price per gallon
Crystal 750 P10 P6.50 P2 P13.50

Black 1,000 P8 P4 P2.50 P10

Clear 1,400 P11 P7 P4 P15.50

Silver 2,000 P15 P9.50 P4.50 P19.50

How much is the joint cost allocated to Product Crystal, Black, Clear, and Silver if the
sales value at split-off point method is used?
Illustration
B Company produces four solvents from the same process: Crystal, Black,
Clear, and Silver. Joint product costs are P9,000. (Round all answers to the
nearest peso)
Product Barrels Sales Price Disposal cost Further processing Final sales
@SOP per unit@SOP costs per unit price per gallon
Crystal 750 P10 P6.50 P2 P13.50

Black 1,000 P8 P4 P2.50 P10

Clear 1,400 P11 P7 P4 P15.50

Silver 2,000 P15 P9.50 P4.50 P19.50

How much is the joint cost allocated to Product Crystal, Black, Clear, and Silver if the net
realizable value at split-off point method is used?
 Accounting for By-products
By-products like main products are produced from a
common raw material and/or common manufacturing
process.

Joint costs are not directly traceable to either main

products or by-products.
 Methods of Costing By-products
Methods of costing by-products fall into two categories:

1. By-products are recognized when sold

2. By-products are recognized when produced
 Category 1
By-products are recognized when sold:

Under this method, a by-product inventory is not setup.

Additional processing costs are expensed when incurred
and disposal costs are expensed at the time of sale.
 Category 1
By-products are recognized when sold:

The net revenue may be presented on the income as:

a. Other income
b. Additional sales revenue
c. A deduction from the cost of goods sold of the main
product.
Illustration - Other Income
Gamayusi Inc. produces a main product Tango together with a by-
product Oscar. There was no beginning inventory during the current
month. The following information were available:
Tango Oscar
Produed 1,000 250
Sold 800 75
Joint cost amounted to P500,000 during the month. One unit of Tango
can be sold for P800 and one unit of Oscar can be sold for P400 after
incurring P80 disposal cost. Operating expenses amounted to P50,000.
How much is the net income if the NRV of the by-product is recognized
when sold and is treated as other income?
Illustration - Additional sales revenue
Gamayusi Inc. produces a main product Tango together with a by-
product Oscar. There was no beginning inventory during the current
month. The following information were available:
Tango Oscar
Produed 1,000 250
Sold 800 75
Joint cost amounted to P500,000 during the month. One unit of Tango
can be sold for P800 and one unit of Oscar can be sold for P400 after
incurring P80 disposal cost. Operating expenses amounted to P50,000.
How much is the net income if the NRV of the by-product is recognized
when sold and is treated as additional sales revenue?
Illustration - Reduction to cost
Gamayusi Inc. produces a main product Tango together with a by-
product Oscar. There was no beginning inventory during the current
month. The following information were available:
Tango Oscar
Produed 1,000 250
Sold 800 75
Joint cost amounted to P500,000 during the month. One unit of Tango
can be sold for P800 and one unit of Oscar can be sold for P400 after
incurring P80 disposal cost. Operating expenses amounted to P50,000.
How much is the net income if the NRV of the by-product is recognized
when sold and is treated as reduction to cost?
 Category 2
The two methods to compute the peso amount of the by-
product to be deducted from the production costs are:
1. Net realizable value method
Under this method, the expected sales value of the
by-product produced is reduced by the expected
additional processing costs and disposal costs. The
resulting NRV of the by-product is deducted from the
total production costs of the main product.
Illustration - NRV
Gamayusi Inc. produces a main product Tango together with a by-
product Oscar. There was no beginning inventory during the current
month. The following information were available:
Tango Oscar
Produed 1,000 250
Sold 800 75
Joint cost amounted to P500,000 during the month. One unit of Tango
can be sold for P800 and one unit of Oscar can be sold for P400 after
incurring P80 disposal cost. Operating expenses amounted to P50,000.
How much is the net income if the NRV of the by-product is recognized
when produced using the net realizable method?
 Category 2
2. Reversal cost method
This is called the reversal method because one must work
backward from the gross revenue to arrive at the estimated joint
cost of the by-product at the split-off point.

The joint cost allocated to the production of the by-product

deducted from the total production cost of the main product.
Illustration - Reversal cost method
Gamayusi Inc. produces a main product Tango together with a by-product Oscar. There
was no beginning inventory during the current month. The following information were
available:
Tango Oscar
Produed 1,000 250
Sold 800 75
Joint cost amounted to P500,000 during the month. One unit of Tango can be sold for
P800 and one unit of Oscar can be sold for P400 after incurring P80 disposal cost.
Operating expenses amounted to P50,000.
Assume that the by-product Oscar can be sold for P400 after incurring P80 disposal cost
for a normal profit of 20% of sales. Additional total manufacturing costs of P4,000 for
direct materials and P16,000 for conversion costs will be incurred after separation. How
much is the gross profit from sale of product Tango if by-product is recognized when
produced, using reversal cost method?
Illustration
Manuel Tuason is the owner and operator of MT Bottling, a bulk soft drink producer. A
single production process yields two bulk soft drink: Rain Dew (the main product) and Resi
Dew (the by-product). Both products are fully processed at the split-off point, and there
are no separable costs. For July 2024, the cost of the soft drink is P120,000. There were no
beginning inventories on July 1, 2024. Production and sales data are as follows:

Production in Liters Sales in Liters Selling Price per Liter

Main Product: Rain Dew 10,000 8,000 P20
By-Product: Resi Dew 2,000 1,400 P2

Assuming by-product is recognized when sold:

1. What is the gross margin for MT bottling?
2. What inventory costs reported in the balance sheet on July 31, 2024, for Rain Dew and
Resi Dew.
Illustration
Manuel Tuason is the owner and operator of MT Bottling, a bulk soft drink producer. A
single production process yields two bulk soft drink: Rain Dew (the main product) and Resi
Dew (the by-product). Both products are fully processed at the split-off point, and there
are no separable costs. For July 2024, the cost of the soft drink is P120,000. There were no
beginning inventories on July 1, 2024. Production and sales data are as follows:

Production in Liters Sales in Liters Selling Price per Liter

Main Product: Rain Dew 10,000 8,000 P20
By-Product: Resi Dew 2,000 1,400 P2

Assuming by-product is recognized when produced:

1. What is the gross margin for MT bottling?
2. What inventory costs reported in the balance sheet on July 31, 2024, for Rain Dew and
Resi Dew.