Joint products
In one sentenceTwo or more products with significant sales value produced together from one material and one process, so one cannot be produced without the other.
Simply put
Like a dairy that produces cream and low-fat milk from the same milk. The cost up to the moment of separation is joint, and each product's share cannot be known precisely.
So you allocate it on a reasonable basis, the best known being each product's share of sales value at the split-off point.
Worked example
A dates factory's joint sorting and packing process cost 60,000 SAR and yielded a premium grade with a sales value of 90,000 SAR and a regular grade worth 30,000 SAR.
Total sales values90,000 + 30,000 = 120,000 SAR
Premium grade's share60,000 × 90,000 ÷ 120,000 = 45,000 SAR
Regular grade's share60,000 × 30,000 ÷ 120,000 = 15,000 SAR
Joint cost allocated45,000 + 15,000 = 60,000 SAR
Formula: Joint cost × (product's sales value ÷ total sales values)
Don't confuse it with
By-productsA by-product has a small value compared with the main product, so it does not usually take a share of the joint cost.