Introduction to Joint Product and By-Products
In various industries more than one product comes out from the manufacturing process. These products are occasionally produced intentionally when in some cases they appear out of the main manufacturing process. Such types of products are known as either joint products or by-products. Even though occasionally these terms are employed interchangeably, there is a main difference among the two and hence it is essential to understand clearly the variation among them. Likewise there is a variation among the accounting of the two and therefore it is necessary to define clearly the concepts of joint products and by-products. In this section, these aspects are discussed in detail together with the accounting treatment of the joint products and by products.
The variation among the joint products and by-products should be understood noticeably. Joint products can be described as specifically different main products that are inevitably produced concurrently from common inputs or through common processing. So from this definition the following characteristics of joint product come out.
Ø Joint products are the result of use of similar raw material and similar processing operations. The processing of a specific raw material might result into the output of two or more products.
Ø All the products coming out from the manufacturing process are of similar economic significance. Other words, the sales value of those products might be more or less similar and none of them can be known as the major product.
Ø The products are produced intentionally that involves that the management of the concerned organization has purpose to produce all the products.
Ø A number of joint products might need further processing or might be sold directly after the split off point.
Ø The manufacturing process and raw material need is common up to a specific stage of manufacturing. After this stage is crossed, additional processing becomes dissimilar for each product. This stage is termed as 'split off' point. The expenditure acquired up to the split off point is termed as joint cost and the apportionment of similar to different products is the major purpose of the joint product accounting.
Ø The management has slight or no control over the relative quantities of the several products that will result.
Ø Joint products are usually produced in industries such as chemicals, meatpacking, automobile oil refining, mining, etc. In oil refining, fuel, oil, petrol, diesel, kerosene, lubricating oil are few instances of the joint products.
By-Product: The word 'by-products' is sometimes employed synonymously along with the word 'minor products'. The by-product is a secondary product that incidentally results from the manufacture of a main product. By-products are also produced from similar raw material and similar process operations but they are secondary results of operation. The major variation among the joint product and by product is that there is no purpose to produce the by-product when the joint products are produced intentionally. The association among the by-product and the major product changes with alterations in economic or industrial conditions or along with development of science. For instance, throughout the Second World War, glycerine, a by-product in soap making was in such a demand that it became virtually the main product when the soap was decreased to the by product. What is by-product of one industry might be a main product of other industry. Generally in continuous process industry, the by-products emerge.
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