Introduction
Chemicals and agricultural goods are only a few of the numerous sectors where many items of equal or different importance are produced concurrently or while the primary product is being made. Joint and by-product goods and by-products are frequently investigated in this area. To become a finished, distinct product, a joint product must first be made using the same raw material and procedure and then be separated from the joint product.
However, the by-product is just a secondary product that develops during the creation of the main product itself.
The primary distinction between a joint product and a by-product is whether the firm intentionally generated the product or whether it developed as a by-product as a result of continued manufacturing. To learn more about the contrasts between the ideas, have a look at the article.
Joint Product vs By Product
While By-products are inferior to the original product from which they originate, Joint products have the same market value as the original. There is no such thing as a side product in By-products, which is why they are less valuable.
Side products or items developed during the production of the primary product are known as joint products. Side goods developed are ranked equivalent to the original ones due to their great demand from both the public and industry.
When a product is being made, it creates by-products, which are the waste products that are produced. Because they are finished goods, they don't need to be processed any longer. Unlike the main product, by-products don't have a lot of value or demand in the market.
Difference Between Joint And By Product In Tabular Form
| Parameters of Comparison | Joint Product | By Product |
| Definition | "Joint products" are either developed or result in the creation of other goods or the original product. | A by-product is formed as a side effect of the main product's production. |
| Value | There is no difference in value between this and the primary product on the market. | If you're looking for something that isn't worth as much as the original, you might want to look elsewhere. |
| Use | Each of these items has intrinsic worth and practical utility. |
It's a waste of time and money to buy these things.
No contribution to the markret |
| Main product | Raw resources such as crude oil, milk, and so forth are always inputs for joint products. | Butter, fruit peels, and other waste products are all examples of by-products. |
| Additional process | Additional processes are required to process the Joint product. | Because they are finished items, by-products don't need any more processing. |
| Economic status | The market value of the joint product is equivalent to that of the primary product. | The market value of a by-product is significantly lower than that of the primary product. |
| Objectives | The market value of a by-product is significantly lower than that of the primary product. | The primary goal of the manufacturing process is not to produce by-products. |
What is Joint Product?
All of the items in a joint product are manufactured at the same time, with a similar amount of input, and each item has a high enough selling price that none of them can be considered the primary product. Processed raw materials yield more than two finished items in joint goods. To produce joint goods, the management of the relevant organization acts intentionally, which means that the management strives to produce the whole product line.
The items are separated and recognized at a point known as a split-off point. Product sales or extra processing might take place at this point, resulting in the final product. Joint cost refers to the expenses incurred up until the time of separation.
Example
Suppose a corporation attempts to make diesel and gets its paraffin from the refinery. In this case, both things are joint products that are intended to be sold and have their own worth on the market. While crude oil is used at the beginning of the distillation process, it is separated into distinct sections to be used in the production of other fuels and products, including diesel. Separate procedures handle the manufacturing of final joint products such as paraffin after the split-off point.
The joint goods are not a by-product of the manufacturing process. Management has a certain goal in mind when it comes to creating joint goods.
Characteristics
The following qualities are common among joint products.
- The primary goal of a manufacturing operation is to create items that can be sold as a set.
- In terms of sales value, all of the joint goods are comparable to one another, and none of the joint products is notably more valuable than the others.
- After the separation, there is no need for additional processing. They are sold immediately upon the point of separation.
- Joint products may necessitate additional treatment in some cases.
- It is necessary to process all joint products at the same time.
- Joint items may not be of the highest quality.
- There is little or no control over the quality of joint goods maintained by the management.
Objectives
- A combined cost analysis has the following goals.
- Accounting for all process expenses in a logical manner.
- The joint product manufacturing profit or loss is calculated.
- The technique or pattern of production can be established.
- Changing the product mix to focus on the most profitable items can boost profits.
- The cost-profit connection can be examined in order to set the price of joint goods.
- It is necessary to determine the impact of cost increases or decreases on the increased or decreased output of joint goods.
- It is possible to calculate the profitability of selling joint goods and by-products.
- Marginal contribution analysis may also be used to optimize profit volume.
What is a By-Product?
Subsidiary or secondary products that are created simultaneously with the primary product and have useful or saleable value are known as products. By-products, which are less important than the main product, are sometimes produced during the process of making the main product.
These are made from scrap or leftovers from the primary manufacturing process. The point at which the by-products are separated from the primary product is known as the split-off point. By product, the market may be categorized as follows:
- Authentic, unaltered products are offered for sale.
- Products that need to be reprocessed before they can be put on the market.
The connection between by-products and the main product changes when the economic value of the by-product is larger than the main product, and vice versa, when the economic value of the by-product exceeds the value of the main product.
Examples
Molasses and alcohol are by-products of the sugarcane process if a corporation employs sugarcane as its primary source of sugar. As soon as the sugarcane is broken down into juice, there is no use for the trash that is left over. As a result, it is sold as scrap to paper mills and ethanol distilleries.
Scrap and By-Product
Depending on the value and purpose of the product, scrap and by-product can be categorized as either scrap or by-product. In manufacturing, scrap is the material remnant that may be recovered and accounted for without additional processing.
As compared to scrap, by-products have a higher recoverable value. In contrast to scrap, which is sold as-is, by-products might be subject to extra processing and market strategy before being sold.
Waste
Term waste is used to describe materials that have no value or even negative value if they must be disposed of at a cost. Some examples of these waste products are gases, sawdust, smoke, and other not-for-sale by-products from the production process. Due to the fact that there is no market value for waste, it does not count towards the valuation stock.
Accounting for By-Products
Categorized into two:
(a) Cost methods, and
(b) Non-cost or sales value methods.
Cost Methods
Replacement Cost Method
When by-products are employed in place of pre-existing materials in the same plant as raw materials, this is the procedure to be followed. It is credited to the primary product's manufacturing cost as a replacement or opportunity cost of the by-product.
Opportunity or replacement costs that would otherwise have been incurred by purchasing by-products from outside suppliers will be taken into account when valuing such items.
Standard Cost Method
All of the by-products are valued at a fixed price depending on the product's technical evaluation. An itemized credit is applied to the primary product's Process Account in accordance with industry-standard practice for by-product costs. Due to practical challenges in calculating the value of the by-product, this approach is useful for determining the cost of the primary product.
Joint Cost Proration Method
By-products shall be valued and accounted for on the same footing with main products if they have significant economic worth or importance, if the adoption of typical by-product accounting procedures may not be fair or reasonable to the main product or to the by-product. In the split-off point, the physical unit method (or the ultimate selling price) can be used to divide the combined expenses over joint goods and by-products (if sold).
Non-Cost or Sales Value Method
Miscellaneous or Other Income Method
Other revenue or miscellaneous receipt in the Profit and Loss Account is used for by-products that have a minor market value relative to the principal items.
This method is criticized for the following reasons:
- Stocks of primary items are overvalued, whereas by-product inventories have little monetary worth.
- It is not scientific to charge all expenditures and expenses to the primary goods.
- No inventory management of by-products is attempted, and losses due to fraud are probable.
- Only at the point of sale, not at the point of manufacture, will by-products be accounted for. Profits fluctuate if by-products are not sold within the time period in which they are produced. This accounting method is a major turn-off.
Credit of By-Product Net Sale Value to Process Account
Direct selling and distribution charges, as well as other process costs incurred following the point of separation and any unique by-product costs are deducted from the sale value before crediting the Process Account. Any change in the market value of by-products will directly impact how much it costs to produce core products, making it difficult to keep track of prior prices and standards.
By-Product Sales deducted from Total Cost
The value of the by-product is subtracted from the overall cost in this manner. In any case, it can be subtracted from the cost of manufacturing.
Credit of By-Product Value less Administration, Selling and Distribution Costs
The value of the by-product, reduced by its percentage administrative, marketing, and distribution costs, is credited to the Process Account in this manner.
By-Product Sales added to the Main Product Sales
All expenditures expended on the primary and secondary items are subtracted from the combined sales of the main product in this manner.
Reverse Cost Method
Selling and distribution charges and further processing costs after a split-off point are removed from the by-products' sales value in this technique, and the net amount is applied to the primary product's sales value.
Main Differences Between Joint Product And By-product (in Points)
Here are some examples of the major distinctions between the joint product and the by-product:
- There are two or more items that share a common raw material need and manufacturing process up to a specific point of production before being sold or further processed. In contrast, the term "by-product" refers to items of little useful value created in making a more valuable product.
- One cannot regard a joint product to be a big product just because it has common saleable values among the other joint goods. In contrast, the resale value of a by-product is lower than that of the primary product.
- As a result, the management of each firm has a deliberate plan to generate the combined product, but there is no plan to produce the by-products.
- Raw materials are used to make joint goods. Like by-product, which is made from material that was wasted during the primary process.
- In order to improve quality or transform joint items into completed goods, it is common for additional processing costs to be incurred. If the by-product can be further processed, it is usually offered for sale in its original form, although this isn't always the case.
- In the market, the joint products can be utilized on their own, but the by-products do not contribute in any way whatsoever to the primary product.
Examples
For example, if a company's goal is to develop two items at the same time, Product A and Product B, then these two products will be referred to as joint products.
Product B and C are considered by-products if the company's primary goal is the creation of Product A, but they are accidentally generated throughout the manufacturing process.
Conclusion
Manufacturing of products comprises multiple processing processes that release several different side products. Side products can be highly sought after, yet they can also be considered trash. For example, milk creates various side products like butter, cheese and they all are extremely beneficial for us, while the ashes after the burning of fuel are not at all useful for us.
Joint products are beneficial products as they have the same demand in the market as the original product has. Additionally, they may need additional fabrication or processing steps. For example, the processing of crude oil results in the creation of lubricants, gasoline, diesel, etc., which are equally significant. On the other hand, By-product does not demands extra processing for making them useful. Other gases and poisonous compounds are generated during the production of chemical products, and these by-products must be disposed of.
References
- https://www.termscompared.com/difference-between-joint-product-and-by-product/
- https://www.accountingnotes.net/cost-accounting/by-products-meaning-and-accounting-cost-accounting/10519