The Complete CFO Handbook

Chapter 22. Joint Product and By‐Product Costing

Agenda

Item 1	Define joint costs and distinguish them from common costs.
Item 2	Discuss the appropriate methods for the allocation of joint costs to joint products.
Item 3	Define by‐products and discuss what may be done with them.
Item 4	Enumerate the methods for costing by‐products.

In many industries, a single production process will yield several different products. For example, petroleum industries produce gasoline, heating oils, and kerosene from the refning of crude oil; meatpacking industries derive various cuts of meats, skins, and trimmings from an animal carcass. When more than one product results from a production process, the products are called joint products and by‐products. Classification depends primarily on their relative sales value. Joint product and by‐product costing involves the allocation of joint costs to joint products, which is necessary for income and inventory determinations. Costing procedures for joint products and byproducts do not constitute a separate cost accumulation system but rather are normally part of a process cost system. In this chapter we present the techniques involved in accounting for joint products and by‐products under a process cost system. While the accounting methodologies are explained, they have limited applicability for decision‐making purposes. In the fnal section of this chapter we explain why.

Joint Products

Joint products (which we also refer to as main products in this chapter) are individual ...