Accounting

Difference Between Joint Cost And Common Cost

By-products and joint products are difficult to cost because true joint costs are indivisible. For example, an ore might contain both lead and zinc. In the raw state these minerals are joint products; and until they become separated by reduction of the ore, the costs of finding, minings and processing are joint costs. With an ore which contains both lead and zinc, neither lead nor zinc can be produced without the other prior to the split-off” stage. The total costs to the split-off stage must be borne by the margins between the selling prices of lead and zinc and the costs of complete  and sell lead and zinc after the split-off point.

Difference between Joint Cost and Common Cost : Joint costs are frequently confused with common costs. However, there is a significant difference between the two, the former being indivisible and the latter divisible. Common costs are allocable among product or services performed because each of the products or services- could be been obtained separately. Therefore, any shared costs of obtaining them can be meaningfully allocated on the basis of relative usage of the common facilities. For example, the cost of fuel or power may be allocated to products based on production volumes or metered usage. The indivisibility characteristic of  joint costs is not always easy to comprehend, for in some cases joint costs can be divided among joint products in accordance with a common cost-causing characteristic. However, the result of such a division is of limited use to management for decision making.

Impact of Difference between Joint Cost and Common Cost

Because of the indivisibility of joint costs, cost allocation and apportionment procedures used for establishing the unit cost of a product are far from perfect. The costing of joint products and by-products highlights the problem of assigning costs to products whose origin, use of equipment, share of raw materials, share of labor costs, and share of other facilities cannot truly be determined. Whatever methods of allocation are employed, profit or loss figure is not affected — provided there are no beginning or ending inventories — by allocating costs to the joint products or by-products, for these costs are recombined in the final income statement.

Show More

Related Articles

Back to top button

Adblock Detected

Please consider supporting us by disabling your ad blocker