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Cost Accounting · Process Costing

Joint Products and By-Products in Process Costing

Updated 10 October 2026 · Fact-checked

Joint products are two or more main products of equal importance that come from one process. By-products are minor outputs of low value. Joint costs up to the split-off point are apportioned to joint products, for example by sales value or physical units. By-product income is usually credited to the process account or to profit.

Understand Joint Products and By-Products in Process Costing

In some industries one process makes several outputs together. Crude oil refining, dairy processing and sugar milling are examples. You cannot make one output without the others. The costs incurred until the outputs separate are called joint costs.

The point where the outputs become separately identifiable is the split-off point. Costs before this point are joint costs. Costs after it are separable (further processing) costs. These belong directly to the product that incurs them and need no apportionment.

Joint products are main products with significant sales value, and each is a reason for running the process. By-products are secondary outputs of small value that arise incidentally. A product can change class if its value changes. Molasses with a small value is a by-product. If it becomes a major source of revenue, it is treated as a joint product.

Joint costs cannot be traced to each product, so you must apportion them. The common methods are physical units, average unit cost, sales value at split-off, net realisable value (NRV) and constant gross margin. The aim is a fair basis, usually one linked to the ability to bear cost. By-products are not given a full share of joint cost. Their value is deducted from the cost of the main products or shown as income.

Key rules to remember

Physical unit method
Joint cost share of a product = Joint cost × Units of product ÷ Total units of all joint products
Gives the same cost per unit to every product. Use it when products are alike in units and value.
Sales value at split-off
Share = Joint cost × Sales value of product at split-off ÷ Total sales value at split-off
Use when every product can be sold at split-off point.
Net realisable value (NRV) method
NRV = Final sales value − Further processing cost − Selling and distribution cost after split-off
Apportion joint cost in the ratio of NRV. Use it when products need processing after split-off.
Constant gross margin NRV method
Joint cost of a product (balancing figure) = Final sales value − Gross profit at the common percentage − Further processing cost
Overall gross profit % = (Total final sales value − Total joint cost − Total further processing cost) ÷ Total final sales value. Here the total joint cost is net of any by-product credit. Every product gets the same gross profit %. The joint cost of each product is the balancing figure, and the shares must add up to the net joint cost.
By-product: credit to process
Net joint cost = Total joint cost − Net realisable value of by-product
NRV of by-product = Sale value − its separate processing, selling and distribution costs.
By-product: reinstated cost
By-product value = Selling price − Estimated profit − Selling and distribution costs − Post-split-off cost
This is the reverse cost method. Use it when the question gives the profit margin to be allowed on the by-product.

How to solve Joint Products and By-Products in Process Costing questions

Follow this order for any question on joint products and by-products. Do it on the working page before you write the final statement.

  1. 1Identify the joint products, by-products and the split-off point. Read the question for words like main products, incidental output and minor value.
  2. 2Deal with by-products first. Compute their net realisable value (sale value less separate costs). Reduce the joint cost by this amount, unless the question says to treat it as other income.
  3. 3Adjust for losses. Use the net output after normal loss. Normal loss scrap value is credited to the process account.
  4. 4Choose the apportionment method the question asks for. If it is silent, use sales value at split-off when products are saleable there, otherwise NRV.
  5. 5Compute the ratio and apportion the net joint cost. Check that the shares add up to the total joint cost.
  6. 6Add each product's own further processing cost to its share. Divide by the units to get cost per unit.
  7. 7Prepare the required statement: cost per unit, profit or loss by product, and closing stock value if asked.
  8. 8Write a one-line comment on the result when the question asks for interpretation, such as which product bears the loss under each method.

Quickest way: Table method for joint cost apportionment

When to use it: Use it when the question gives units, selling prices and further costs for two or three products and asks for cost or profit by product.

  1. Draw one table with a column for each product and a total column.
  2. Fill in units, selling price and sales value in the first rows.
  3. If the products are further processed, add rows for further cost and NRV.
  4. Put the apportionment basis (units, sales value or NRV) in a row and total it.
  5. Multiply the net joint cost by each product's basis ÷ total basis.
  6. Add separable cost, divide by units, and check that the shares add up to the joint cost.

Common mistakes in Joint Products and By-Products in Process Costing

  • Apportioning the full joint cost without deducting the by-product value.

    Students treat the by-product as a third joint product or forget it.

    Fix: Subtract the by-product NRV from the joint cost first, unless the question says to take it as other income.

  • Using final sales value as the basis when the question asks for sales value at split-off.

    The two methods look alike and students use the numbers given first.

    Fix: Underline the phrase 'at split-off'. If only final prices are given, work out NRV only when the question asks for the NRV method.

  • Forgetting to deduct further processing cost when computing NRV.

    Students stop at the sale value.

    Fix: Always compute NRV = final sales value − further processing and selling costs after split-off.

  • Adding further processing cost to the joint cost before apportionment.

    Students mix the costs before and after split-off.

    Fix: Apportion only joint cost. Add each product's separable cost to its own share afterwards.

  • Using input units instead of output units after normal loss.

    Normal loss is missed when the process data is long.

    Fix: Work out good output first. Take the scrap value of normal loss as a credit to the process account.

  • Treating a by-product with a large value as a minor item.

    Students rely on the label in the question.

    Fix: Follow the question. If it calls an output a joint product or gives a method for it, apportion cost to it.

Worked examples

Example 1

A process incurs joint cost of ₹3,60,000 and yields 2,000 kg of Product A and 1,000 kg of Product B. Selling prices at split-off are ₹150 per kg for A and ₹120 per kg for B. Apportion the joint cost by (i) physical units and (ii) sales value at split-off.

Show the solution
  1. Physical units: total units = 2,000 + 1,000 = 3,000 kg.
  2. Cost per kg = ₹3,60,000 ÷ 3,000 = ₹120.
  3. A gets 2,000 × ₹120 = ₹2,40,000. B gets 1,000 × ₹120 = ₹1,20,000.
  4. Sales value: A = 2,000 × ₹150 = ₹3,00,000. B = 1,000 × ₹120 = ₹1,20,000. Total = ₹4,20,000.
  5. A's share = ₹3,60,000 × 3,00,000 ÷ 4,20,000 = ₹2,57,143 (rounded).
  6. B's share = ₹3,60,000 × 1,20,000 ÷ 4,20,000 = ₹1,02,857 (rounded).
  7. Check: ₹2,57,143 + ₹1,02,857 = ₹3,60,000.
  8. Profit under physical units: A = ₹3,00,000 − ₹2,40,000 = ₹60,000. B = ₹1,20,000 − ₹1,20,000 = nil.
  9. Profit under sales value: A = ₹3,00,000 − ₹2,57,143 = ₹42,857, which is 14.29% of its sales value. B = ₹1,20,000 − ₹1,02,857 = ₹17,143, which is also 14.29% of its sales value. Total profit is ₹60,000 on sales of ₹4,20,000, which is 14.29%.

Answer: By physical units: A ₹2,40,000 and B ₹1,20,000. By sales value at split-off: A ₹2,57,143 and B ₹1,02,857. Under the physical method B's cost of ₹1,20,000 equals its sales value of ₹1,20,000, so B makes no profit while A earns ₹60,000. Under the sales value method both products earn the same profit of about 14.3% of sales value (A ₹42,857 and B ₹17,143).

Example 2

In a process, the total cost is ₹2,50,000. Output is 4,000 units of Product X and 2,000 units of Product Y, with a by-product Z of 500 units. The by-product sells at ₹20 per unit and needs ₹2 per unit of selling cost. X is sold at ₹60 per unit and Y at ₹40 per unit. Find the cost per unit of X and Y if joint cost, after by-product credit, is apportioned on sales value.

Show the solution
  1. By-product NRV = 500 × (₹20 − ₹2) = 500 × ₹18 = ₹9,000.
  2. Net joint cost = ₹2,50,000 − ₹9,000 = ₹2,41,000.
  3. Sales value of X = 4,000 × ₹60 = ₹2,40,000.
  4. Sales value of Y = 2,000 × ₹40 = ₹80,000. Total = ₹3,20,000.
  5. Share of X = ₹2,41,000 × 2,40,000 ÷ 3,20,000 = ₹1,80,750.
  6. Share of Y = ₹2,41,000 × 80,000 ÷ 3,20,000 = ₹60,250.
  7. Check: ₹1,80,750 + ₹60,250 = ₹2,41,000.
  8. Cost per unit of X = ₹1,80,750 ÷ 4,000 = ₹45.1875, about ₹45.19.
  9. Cost per unit of Y = ₹60,250 ÷ 2,000 = ₹30.125, about ₹30.13.

Answer: Net joint cost is ₹2,41,000. X bears ₹1,80,750 (about ₹45.19 per unit) and Y bears ₹60,250 (about ₹30.13 per unit).

Exam tips

  • In the 2-mark MCQs, expect the difference between joint products and by-products, the meaning of split-off point, or one quick ratio. Read the basis named in the stem before you calculate.
  • In written answers, show the table with the ratio, each share and a total check. Step marks are given for the by-product credit and the basis of apportionment.
  • If the question gives no method, state the method you assume. Sales value at split-off or NRV is a safe choice with a reason.
  • Keep the joint cost and separable cost apart on your page. Mixing them is the most common way to lose marks.
  • Study this with CAS 19 (Joint Costs) for the standard's view on joint costs and by-products. Where a question refers to a Cost Accounting Standard, follow its treatment.

Practice questions from Process Costing

Joint Products and By-Products in Process Costing 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 in Process Costing: frequently asked questions

What is the difference between joint products and by-products?

Joint products are main outputs of similar importance and value from the same process. By-products are minor outputs of small value that arise incidentally. Joint products get a share of joint cost. By-products usually only give a credit to the process.

What is the split-off point?

It is the stage where joint products become separately identifiable. Costs up to this point are joint costs and are apportioned. Costs after it are traced directly to the product.

Which joint cost apportionment method should I use in the exam?

Use the method the question names. If none is named, sales value at split-off suits products saleable at that point. NRV suits products that need more processing. Always state your choice.

How is a by-product treated in process costing?

The common method is to credit the by-product's net realisable value to the process account, which lowers the joint cost. Another method shows its sales as other income. A third reinstates a cost for it from the selling price less profit and expenses.