April 12, 2010

Joint Products Costing- Features,objectives and meaning

According to ICMA terminology " Joint products are two or more products separated in the course of processing, each having a sufficiently high sale able value to merit recognition as a main product"

Features of a Joint Product :
The following are the distinctive features of a joint products.

They are of equal importance and value.
They are all produced in the same process out of common raw material or production method
They are unavoidably produced together.
They are separated from each other at a specific point in the process called Split off-point
They may need further processing.

Objectives of Joint Product Costing :

It has several objectives.Process costs should be accurately recorded after classifying them suitably;.The net result of each product and the pattern of production should be ascertained.The effect of changes in volume of each product on the overall cost and profit have to be determined.The ramifications of further processing of each joint products compared to sale at split-off point should also be ascertained.

Meaning of Joint and Separate Costs:

In the process of their production, joint products are separated from each other at some specific stage or point.All the costs incurred in the process till that stage are called joint cost . Some products may be sold and other products may need further processing.Additional Cost for each of the products further processed are called post separation cost or expenses.

Accounting Procedure for Joint Products:
A joint process account is prepared where the joint costs are debited and the apportioned joint costs are credited.The apportionment is done on some suitable basis.Separate ledger accounts are opened for each product, showing its share of joint cost,separate expenses and selling expenses on the debit side.The sales value and any closing stock at cost are credited.The balance in each product account represent profit or loss of the product which is transferred to the profit and loss account.

The basic problem in joint product costing is the apportionment of joint costs