Characteristics of joint products: A great number of products or services are linked together by physical relationships which necessitate simultaneous production. To the point of split-off or to the point where these several products emerge as individual units, the costs of the products form a homogeneous whole.
To present the characteristics of joint products, a classic example is found in the meat-packing industry where various cuts of meat and numerous by-products are processed from one original carcass with one lump sum cost. Another example of joint product manufacturing is found in the production of gasoline where the derivation of gasoline inevitably results in the production of such items as naphtha, kerosene, and distillate fuel oils.
The simultaneous production of various grades of glue during a manufacturing operation and the processing of soybeans into oil and meal are other examples of joint products. Joint product costing is also found in industries that must grade raw material before it is processed. Tobacco manufacturers (except in cases where graded tobacco is purchased) and virtually all fruit and vegetable caners face the problem of grading. In fact, such manufacturers have a dual problem of joint cost allocation: first, material cost is applicable to all grades and second, subsequent manufacturing costs are incurred simultaneously for all the different grades. Lets see the characteristics of joint products.
Characteristics of joint products may be different under different situations. The chief characteristics of joint products cost is the fact that the cost of these several different products is incurred in a indivisible sum for all products and not for each product individually. Total production costs of multiple products involve both joint costs and separate, individual product costs. These separable product costs are identifiable with the individual product and, generally, need no allocation.
The total sum of production costs consists not only of direct costs, such as direct materials and direct labor, but also of those indirect factory overhead costs such as plant and machinery depreciation and service facilities necessary to produce the products.