Joint products are two or more products produced from a common input. The split-off point is where the joint products become separate. Joint costs are incurred up until the split-off point. This document discusses using the contribution approach to analyze the profitability of joint products after the split-off point by comparing incremental revenues to incremental costs of further processing each product. Joint costs before the split-off point are not relevant to decisions about further processing individual products.

1. Joint Product Costs and the
Contribution Approach
Prepared By
Name: Umma Hania
ID:19025

2. • Joint products : Two or more products that are
produced from a common input are known a
joint products .
• Split-off point : The split-off point is the point in
the manufacturing process at which the joint
products can be recognized as separate products.
• Joint cost: The term joint cost is used to describe
the costs incurred up to the split-off point.

6. Joint costs of buying the wool and separating the
wool are relevant when considering the profitability
of the entire operation.
Joint costs could be avoided if the entire operation
were shut down.

7. Compare the incremental revenues to the incremental
costs from further processing as follows:
Joint costs are not relevant when considering the
profitability of any one product.

8. New overall profitability:

9. Relevant Not relevant
Joint costs

10. Joint Products
Separate
Processing
Separate
Processing
Final
Sale
Final
Sale
Final
Sale
Separate
Product
Costs
Joint
Input
(Wool)
Separation
Process
Split-Off
Point
Coarse
Wool
Fine Wool
Superfine
Wool
Joint costs
are incurred
up to the
split-off point
Common
Production
Process
Undyed Dyed

14. • As this analysis shows, the company would be
better off selling the undyed coarse wool as is
rather than processing it further.
• The other two products should be processed
further and dyed before selling them.
• Joint costs of the wool ($200,000) and of the
wool separation process ($40,000) play no
role in the decision to sell or further process
the intermediate products.

15. • These joint costs are relevant in a decision of
whether to buy wool and to run the wool
separation process,
• but they are not relevant in decisions about
what to do with the intermediate products
once they have been separated.

16. • Even though the company is making money overall, it
may be losing money on
one or more of the products.
• If the company buys wool and runs the separation
process, it will get all three intermediate products.
Nothing can be done about that
• . However, each of these products can be sold as is
without further processing. It may be that the company
would be better off selling one or more of the products
prior to dyeing to avoid the dyeing costs.