Joint Product

Publication Date :

14 Jan, 2023

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Table Of Contents

What Is A Joint Product?

A joint product is an output acquired in the manufacturing operation after processing a primary product. It is called joint because it is obtained with other outputs from the main product, all of which have equal importance and use in the market.

Since every such product is equally valuable, they have a significant sale value. Therefore, the cost incurred for input can be equally allotted to all of them, and they usually need further processing. This deliberate manufacturing effort is widely applied in the oil industry, where products like gasoline, paraffin, lubricants, etc., are manufactured from crude petroleum.

What Is A Joint Product?

A jointly acquired product is obtained during manufacturing after processing a top product.
Since it is acquired along with other similar resultant outputs, it is termed joint.
Joint product pricing is similar since they all have identical and significant value in the market. The manufacturing process cost can also be allotted to them equally.
These outputs are usually processed further for better use. They are widely found in the oil industry, where paraffin, asphalt, lubricant oil, etc., fall under the joint category, where the main product is crude oil.

Joint Product Explained

A joint product is jointly acquired output after production uses that same primary raw material. All such resultant products have an equal market value and production cost.

They may not necessarily be produced in equal proportion. However, all such products generate simultaneously and usually need separate processing later for commercial purposes. In addition, further processing is sometimes done for joint product development to increase their value after separating them.

Some main products are crude oil produces, gasoline, kerosene, paraffin, etc., which are very valuable in the market. Similarly, pig iron and slag are produced in a blast furnace.

Sometimes these products vary in quality even though they come from the same primary raw material. Like all coal grades may not be the same even though they are from the same mine. However, joint product costing methods can distribute these products’ production costs.

Features

Some essential features of a joint product model are as follows:

The output of the same raw material – The most crucial part is that they come from the same raw material in the same manufacturing process.
The main manufacturing aim – These products have good value in the market. Thus, often, manufacturers mainly aim at producing them.
Further processing is not mandatory – Further processing may not always be required. However, this enhances the value in the market.
Proportion is natural and cannot be changed- They are produced in a natural proportion, which the management cannot alter.
All of them have almost equal sale value – These products have very high and practically identical market values. As a result, they help to increase the company's profit margin.
Quality may be challenging to maintain – Sometimes, it is difficult for manufacturers to keep these products' quality as the management has no control over their production.

Examples

Let us understand the concept with some examples.

Example #1

White Dairy Ltd is a company that manufactures various milk products from milk like cream, cheese, butter, etc. These products are joint as they are manufactured from the same raw material, milk.

The company has decided to expand its business and open more distribution outlets. It has been noticed that the sale of the joint products is giving more profit margin. Thus, it increases the purchase of milk to get more butter, cheese, and cream since selling these items more increases the revenue and brings down the overall cost of production.

Thus, we see from the above example that White dairy Ltd gets items like butter, cheese, and cream, which have a high and almost equal value in the market, whereas the primary raw material, in this case, is just one, that is milk.

Example #2

The leather and hide industry in the US, which is the joint product of the animal production industry, has been facing a change in production level. While the export volume of pig skin, the export of salted hide increased. However, the Covid-19 pandemic induced fear among the people, adding to a fall in exports. Exports were already down due to less demand and price globally. But slaughter is growing, though quite slowly. The US hide and leather industry are closely keeping track of the situation.

Example #3

Lumber, the joint product of the wood processing industry, is facing a fall in demand in the US due to decreased housing demand, directly linked to the continuous rise in market interest rate. The high rates discourage home buyers from taking loans to buy houses. However, builders are hoping for a change in the situation very soon.

Joint Product vs By-Product

A joint product model can be defined as those simultaneously produced in natural proportion from a particular raw material in a manufacturing process. By-products are subsidiary items made by chance or incidentally, along with the primary raw material. The fundamental differences between them are as follows:

Joint Product	By-Product
Joint product pricing is high in the market.	Their market value is relatively less.
Their quantity is natural, but they are required to produce them.	They are incidentally produced.
High resultant profit from the sale.	Low resulting profit due to low sale value.
They might need further processing to enhance their value.	Even further processing will only improve their value a little in the market.
For instance, paraffin and lubricant oil are high-value products acquired from crude oil manufacturing.	For example, tar and gas are obtained from coke ovens, which are not of much commercial value.

Difference Between Joint Product And Co Product

A joint output is the naturally produced simultaneous output from the same raw material with good commercial value. In contrast, co-products are contemporary and do not necessarily come from the same raw material. The fundamental differences between them are as follows:

Joint Product	Co Product
It comes from the same raw material.	It does not come from the same raw material.
They are produced in combination with other outputs from the raw material.	They are contemporary.
The proportion of joint product development is natural and beyond management's control.	The manufacturing proportion depends on the management’s discretion.
They come from the same manufacturing process.	They may or may not come from the same manufacturing process.
Every such product will have the same importance and sale value.	All co-products need not necessarily have the same importance and sale value.
For instance, meat and animal skin are jointly obtained in meat manufacturing.	For instance, cakes, cookies, and biscuits are co-products of a bakery process.

Frequently Asked Questions (FAQs)

1. What is joint product costing?

This costing refers to the method of cost compilation and classification. Here, the cost is determined through the production style and methodology used, which helps to calculate the profit and loss of the entire manufacturing process. In addition, the output level determines how the production cost will be influenced.

2. How are costs allocated to joint products?

The study of joint product costing methods is critical to understand the closing inventory value, the product price, and the profit or loss on the sale. Some standard methods are:
a) Physical Units method – Cost is allocation based on factors like number and weight.
b) Net Realizable value at split-off point – Here, some values like estimates profit margin, sales and distribution cost, etc., are deducted from the sale value of these products.
c) Technical estimates – Some technical projections are used to allocate the cost to the products if the values obtained from the above methods are unreliable.

3. How does joint product work?

They are the naturally produced outputs during a manufacturing process that has a high market value. Manufacturers aim to produce them because they can earn good profits, and production costs can be allocated equally.