Joint products--two or more products produced together up to a split-off point and become separate products afterward.  Joint products are inherent in the production process.  Examples of industries with joint products are meat-processing, lumber and petroleum.

Common (joint) costs are incurred before the split-off point.

Split-off point: point at which the joint products can be identified and removed from the joint product.

Joint products can be sold or processed futher.

Costs after split-off point are called separable costs.

Common costs are allocated to joint products at the split-off point. Sales value at the split-off point, estimated net realizable value, or some physical measure may be used to make the allocation.

Sales value at split-off point is used if a sales value at split-off exists.

estimated net realizable value is determined by using the estimated sales values of the joint products after further processing less the separable processing costs. The result is used to allocate joint costs to the joint products.

Joint cost allocation is necessary for inventory valuation and income determination.

Joint costs are ignored for internal decision making, such as the decision to sell a joint product at split-off point or to process the joint product further. Such a decsion is based on the incremental cost of processing futher versus the incremental revenue to be gained.

By Products are incidental to the main product(s) in terms of their relative value. Joint costs are not allocated to a by-product. By-products are valued at estimated net realizable value. The net realizable value of the by-product is subtracted from the cost of the main product(s).  Theoretically, when the by-product is sold, there should be no income or loss from the sale. Under this technique, income (or loss) on the by-product is recognized before the point of sale because the by-product inventory is valued at its estimated sales price less costs to complete and or sell the product.