The chapter of Joint & By-Products is extension of Process Costing chapter because in Process costing the output of each and every process was one defined product only but in this chapter everything remains same except output will be more than one product. E.g. In Process costing, if we process cotton we will get defined output i.e. Thread but in Joint & By-Products chapter if we process Crude oil the output will be in gasoline, petrol, diesel, paraffin wax, coal, tar, kerosene, etc. The most common e.g. which one can see in his day to day life is when granny or mummy removes butter and buttermilk from the mixture. Both are produced simultaneously. You can never get only butter or only buttermilk from it. Whenever they will come out as output they will come together only.
When two or more products are produced simultaneously in natural proportions from the same material in the same process is called as Joint Products having almost equal importance. CIMA has defined it as “two or more products separated in processing, each having a sufficiently high saleable value to merit recognition as a main product.”
- Joint products are of almost equal importance meaning each product is in such proportion that no single product can be termed as main product.
- They are produced simultaneously by a common process.
- They are produced from the same basic raw materials.
- They are produced in natural proportionse. proportion of such products cannot be changed at the will of management.
Examples of joint products are gasoline, diesel, kerosene, lubricants, tar, paraffin and asphalt obtained from crude oil. Different grades of lumber resulting from a lumbering operation.
Co-products are particular type of products but produced in different varieties. Co Products represent two or more products which are contemporary but are not necessarily produced in natural proportions from the same raw material in the same process. For example, in fan manufacturing industry, a number of co-products may be produced in different quantities such as ceiling fan, table fan, pedestal fan, cabin fan etc. Similarly, in automobile industry co-products are cars, jeeps, trucks, buses etc. Co-products are distinguished from joint products in as much as the quantities of joint products remain in linear relationship between them whereas co-products are independent ones and may be produced in different quantities without any co-relationship with others..
DISTINCTION BETWEEN JOINT PRODUCTS AND CO-PRODUCTS
- Joint products are produced in natural proportions which cannot be altered by management (E.g. like meat and hides produced in meat industry) whereas Co-Products are not produced in natural proportions and their proportion can be changed by management (In a bakery, the various Co-Products are bread, cakes, biscuits, etc. and the quantity of each such product can be changed as per the managements needs).
- Joint Products are produced using same material whereas Co products need not necessarily be produced from the same material.
- Joint Products are produced simultaneously in the same process whereas Co-Products need not necessarily be produced in the same process.
- Joint Products are almost of equal importance whereas co products need not necessarily be of equal importance.
By-products are defined as “any saleable or usable value incidentally produced in addition to the main product”. By-product means secondary or subsidiary products arising in the course of manufacturing the main product(s). In the process of producing the main product it frequently occurs that materials or other products emerge which are of smaller value. These are the by-products and even if subsequent processing enhances their value, the resulting profit will be less than that from the main product; otherwise, of course the by-product would become the main product and vice-versa.
- By products are of relatively small value.
- They emerge incidentally in the course of manufacture of the main product.
For example, in oil refinery crude oil is processed but by-products, i.e. bitumen, chemical fertilizer are obtained with the main product-refined oil. Similarly in coke ovens, gas and tar are incidentally produced in addition to the main product coke. Gas and tar are therefore termed as by-products. Similarly in the sugar industry production of molasses and bagasse while producing sugar are nothing but by products only.
DISTINCTION BETWEEN JOINT PRODUCTS AND BY PRODUCTS
- Joint Products are produced simultaneously whereas By Products emerge incidentally in the course of manufacture of main product.
- Joint Products are almost of equal importance whereas By Products are of relatively small value.
POINTS TO REMEMBER
- The classification of various products from the same process into joint products and by-products depends upon the relative importance of the products and their value of the various end-products are almost equal in importance and their value is also more or less the same, they may be identified as joint products.
- But, if one end-product has greater importance and higher value and the other products are of less importance and rather of low value, the latter may be classified as by-products.
- It may be noted that the value of some end products may be so insignificant that they may be classified as waste or scrap.
- Thus by-products are distinguished from joint products and waste or scrap only in respect of degree of importance and value.
- The management may decide to treat all products produced as joint products or one product as main product and the other products as by-products.
- The same product may be a joint product in one industry and a by-product in another industry.