Management Accounting · Cost accounting methods

Joint Products and By-Products: Apportioning Joint Costs

Updated 11 October 2026 · Fact-checked

Joint products are two or more products of significant value that come from the same process and are separated at the split-off point. You share the joint process cost between them using physical units or sales value at split-off. A by-product has minor value, so its income is usually deducted from the process cost.

Understand Joint Products and By-Products

Some processes cannot make one product alone. Oil refining, dairy processing and chemical production all produce several outputs from one input. Up to a point, you cannot tell which cost belongs to which output. That point is the split-off point (also called the separation point). Costs before it are joint costs.

Joint products are outputs that each have significant sales value. The business sees each one as a main product. By-products are outputs of minor value compared with the joint products. They appear as a side effect of making the main products. A waste output has no value, or may even cost money to dispose of.

The cost accountant needs a cost per unit for each joint product, for example to value closing inventory and to report profit by product. Because the joint cost cannot be traced, you must apportion it. The two methods in this syllabus are the physical units method and the sales value at split-off method.

The physical units method shares cost in proportion to output quantity (kg, litres, units). It is simple, but it can give a cost per unit that is higher than the selling price of a low-value product. The sales value method shares cost in proportion to each product's sales value at split-off. It gives each product the same percentage of gross margin at split-off, so it is usually seen as fairer.

By-products are treated differently. They are not given a share of joint cost. The usual treatment is to deduct the by-product's net sales income (sales less any further processing or selling cost) from the joint process cost, before you apportion the rest to the joint products. Alternatively, the income can be shown as other income in the profit statement. Read the question to see which one it wants.

One warning. Joint cost apportionment is arbitrary. It helps with inventory valuation and cost reporting, but it should not be used to decide whether to keep or drop a joint product. For that decision, you compare extra revenue with extra cost after the split-off point.

Key formulas to remember

Physical units apportionment: Cost to product = (Product units ÷ Total units of joint products) × Joint cost to be apportioned; Use only the joint products' units. Leave out the by-product and any waste.
Sales value at split-off apportionment: Cost to product = (Product sales value at split-off ÷ Total sales value of joint products) × Joint cost to be apportioned; Sales value = units × selling price at split-off. If a product is sold only after further processing, you must work back to a split-off value (see net realisable value).
Joint cost to be apportioned: Total process cost − net income from by-product (± any opening and closing WIP or normal loss adjustments); By-product income is normally deducted before the apportionment.
Net by-product income: By-product sales revenue − further processing costs − selling and distribution costs; Only this net figure reduces the joint cost.
Cost per unit of a joint product: Apportioned joint cost ÷ Units of that product (+ any separable processing cost per unit); Add separable costs after split-off to the product they relate to, not to the joint pool.

How to solve Joint Products and By-Products questions

Use this order for any joint product question. It keeps the by-product, the joint cost and the apportionment base separate.

1Identify the split-off point and list the outputs. Decide which are joint products, which is the by-product and which is waste.
2Find the total joint process cost. Include any costs of materials, labour and overhead up to split-off, and adjust for losses or WIP if the question gives them.
3Calculate the net income from the by-product (revenue less any further processing and selling costs) and deduct it from the joint cost.
4Choose the apportionment base the question names: physical units or sales value at split-off. Work out each joint product's share as a fraction of the total.
5Multiply each fraction by the joint cost to be apportioned. Check that the shares add back to that total.
6Add any separable (post-split-off) costs to the right product. Then work out cost per unit, profit or closing inventory value as asked.
7Check the answer. Total cost apportioned must equal the joint cost after the by-product credit, and the units used must be those of joint products only.

Quickest way: Ratio shortcut for joint cost sharing

When to use it: Use this on multiple choice or number entry questions where you only need one product's share of cost.

Find the net joint cost (process cost less by-product income) first.
Write the base for each joint product (units or sales value) and add them up.
Reduce the ratio, for example 6,000 : 4,000 becomes 3 : 2.
Divide the net joint cost by the total ratio parts and multiply by the parts for the product asked about.
Do a quick check: the larger base must get the larger cost.

Common mistakes in Joint Products and By-Products

Apportioning the by-product a share of joint cost.
Students treat every output the same way.
Fix: Give the by-product no joint cost. Deduct its net income from the process cost instead, unless the question says to show it as other income.
Including the by-product's units or sales value in the apportionment base.
The totals are copied from a table that lists all outputs.
Fix: Underline the joint products only and total just those.
Using sales value after further processing when the question asks for sales value at split-off.
The final selling price is the figure most easily seen in the question.
Fix: Use the value at the split-off point. Only if no market value exists there, work back by deducting separable costs from final sales value.
Deducting by-product revenue but forgetting its further processing and selling costs.
Students stop at the selling price.
Fix: Deduct only the net income: revenue less costs incurred after split-off on the by-product.
Adding separable costs into the joint cost pool.
All costs are treated as one big total.
Fix: Separable costs belong to one product only. Add them to that product after the apportionment.
Using joint cost apportionment to decide whether to drop a product.
A product with an apportioned loss looks unprofitable.
Fix: Joint costs are sunk once the process runs. Compare the product's extra revenue with the extra cost after split-off.

Worked examples

Example 1

A process costs $120,000 and produces 6,000 kg of Product X and 4,000 kg of Product Y, which are joint products. It also produces a by-product Z that sells for net income of $10,000 after all selling costs. Apportion the joint cost using physical units. Give the cost per kg of X and Y.

Show the solution

Joint cost to apportion = $120,000 − $10,000 = $110,000.
Total joint product units = 6,000 + 4,000 = 10,000 kg.
X share = 6,000 ÷ 10,000 × $110,000 = $66,000.
Y share = 4,000 ÷ 10,000 × $110,000 = $44,000.
Check: $66,000 + $44,000 = $110,000.
Cost per kg of X = $66,000 ÷ 6,000 = $11. Cost per kg of Y = $44,000 ÷ 4,000 = $11.

Answer: X receives $66,000 and Y receives $44,000. Cost per kg is $11 for both products, which is always the case under the physical units method.

Example 2

A process has joint costs of $90,000. It makes 5,000 units of Product A (sold at split-off for $12 each) and 2,000 units of Product B (sold at split-off for $15 each). There is no by-product. Apportion the joint cost using sales value at split-off, and find the cost per unit of each product.

Show the solution

Sales value of A = 5,000 × $12 = $60,000.
Sales value of B = 2,000 × $15 = $30,000.
Total sales value = $60,000 + $30,000 = $90,000.
A share = 60,000 ÷ 90,000 × $90,000 = $60,000.
B share = 30,000 ÷ 90,000 × $90,000 = $30,000.
Cost per unit of A = $60,000 ÷ 5,000 = $12. Cost per unit of B = $30,000 ÷ 2,000 = $15.
Check: both products show zero profit at split-off because total sales value equals joint cost.

Answer: A is charged $60,000 ($12 per unit) and B is charged $30,000 ($15 per unit). Each product gets the same gross margin percentage at split-off, which is 0% here because the numbers were chosen to equal the joint cost.

Exam tips

Read which method the question names. The same data gives different answers under physical units and sales value.
Scan for a by-product before you start. Deduct its net income from the process cost first, and keep it out of the apportionment base.
In multiple response and number entry questions, write down the net joint cost and the ratio on your scratch paper. Most mistakes happen in the first line.
Use the checks: shares must add up to the joint cost, and under physical units every joint product has the same cost per unit.
Remember that apportioned joint cost should not drive a keep-or-drop decision. A question on this point wants the incremental revenue and cost after split-off.

Practice questions from Cost accounting methods

Joint Products and By-Products in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Joint Products and By-Products: frequently asked questions

What is the difference between a joint product and a by-product?

A joint product has significant sales value and is a main reason for running the process. A by-product has minor value compared with the joint products. Joint products receive a share of joint cost. A by-product does not, and its net income is usually deducted from the joint cost.

Which method is better, physical units or sales value?

Neither is correct in every case. Physical units is simple but ignores how much each product is worth, so a cheap product can look loss-making. Sales value at split-off links cost to ability to earn revenue and gives equal gross margin percentages, so it is often preferred.

What is the split-off point?

It is the point in the process where the joint products become separately identifiable. Costs up to that point are joint costs. Costs after it are separable costs and belong to one product.

How is by-product income treated in the accounts?

Normally the net income from the by-product is deducted from the joint process cost before apportionment. Another acceptable treatment is to show it as other income in the profit statement. Follow the instruction in the question.