Process costing-a case of joint products: definition; three joint products cost apportionment methods

1.1 Introduction

Under process costing, there are three ways in which valuation of produced units are valued or assigned cost as indicated in our process costing article. In this article, the focus is on joint products

1.2 Joint Products

Definition: Joint products are two or more services or goods which are produced together using the same facility or process with substantially equal saleable economic value. Examples of such products are: -

  • Petroleum products such as oil refining process which produce, diesel, petrol, paraffin, lubricants and gas.
  • Domestic animal products; such as milk, butter and cream
  • Meat processing-where different products such as grade one meat; grade two meat and grade three meat.

NB: That some joint products may be complete at some point in the process while others at some point require further processing. If this be the case, some more resources are used to complete their production.

1.3 Joint Product Cost Apportionment Methods

Since the case of joint products utilize economic resources in a common manner, the separation of the amount of economic resources used by each category product is hard to demarcate. Therefore, there are THREE main methods which are used to apportion the costs are namely;

1.3.1 Joint Product Cost Apportionment using Physical unit Method.

1.3.2 Joint Product Cost Apportionment using Sales Value Method.

1.3.3 Joint Product Cost Apportionment using Sales Value Less Post Separation Cost Method.

These three methods are further substantiated in our corresponding articles in the above order.

About the Author - Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers.