Methods of Joint Product & By-Product Costing:

 Joint Product Costing is techniques in which there are two or more products are produced with a common manufacturing process from a common process of input, which output from that manufacturing process, are known as joint products.

The costs which incurred over this complete manufacturing is known as joint or common costs because the process output is in the shape of two or more than two products. But there is a point how we know that how much cost we need to spend over these separate products? At the Split-Off point where the products are being separate from the manufacturing process at these points when the cost incurred these costs are called Separable costs.

For explaining these all methods we have many examples but the example which I am going to give there that is from the Oil sector. The Oil rigging is a process to produce the oil which a natural resource but during the producing process there are many other joint products which we abstract from this process the oil companies use the same resources but with the different production costs which are actually joint costs with each other. That example helps us to understand these methods.

Physical Unit method:

 The Physical Unit method of allocation joint costing is used for separable products and cost is based on the weight allocated to each portion of the production. The formula for the Physical Unit method is as follows:

Market-Based or Sales-Value at Split-Off method:

 Sales-Value at split-off method is based on separate products relative proportion of total sales value ultimately attributable to the period of production and the resultant is multiplied by total joint cost.

Estimated net realizable value method:

 According to this joint cost allocation method, there is a variation of the relative sales value method. The difference is total under the NRV method all costs which are already separate necessary to make the product saleable are subtracted before the allocation is made and then multiplied by joint cost.

Constant gross-margin percentage NRV method:

 According to this method determination of the gross margin percentage for all of the products. When we find out the overall gross margin percentage and subtract the appropriate gross margin form the final sales value of each product to calculate total costs for the product and at last to subtract the separate costs to arrive at the joint cost amount.

Determination of the gross margin.

“Gleim’s  book 15^th edition for the CMA-USA students and Professionals  is the source of all the examples and this topic”