Difference Between Joint Cost and Separable Cost
What is the difference between joint cost and separable cost? Joint costs are costs incurred prior to the, point at which separately identifiable products emerge from the same process. This point is called split-off point. The flowchart shown below depicts products resulting during the production of coke in which coal is the original raw material.
In addition to coke as its major product, the process produces Salted Peanuts, Raw Peanuts and Peanuts Butter. of which the greater quantity is not sold but is used to fire the ovens as well as the boilers in the power plant. The coke ovens are the split-off point for cost assignments. The cost of each product consists of pro-rota share of joint cost and any separable or subsequent cost incurred. We should make difference Between Joint Cost And Separable Cost in order to make decisions in pricing.
The accounting treatment of by-products necessitates a reasonably complete knowledge of the technological factors underlying their manufacture, for the origin of by-products is not always the same. By-products arising from the cleansing of the main product, such as Peanuts, generally have a residual value. In some cases, the byproduct is leftover scrap or waste such as dust .
In other cases, the by-product may not be the result of any manufacturing process but may arise from preparing raw materials before they are used in the manufacture of the main product. The separation of cotton seed from cotton, cores and seeds from apples, and shells from cocoa beans are examples of this type of by-product. The Difference between joint cost and separable cost must be assumed in the light of joint products and by products.