Common (pre-separation) costs in joint and by product costing

Joint costs (also known as common or pre-separation costs) are costs common to the production process during which are simultaneously processed two or more different products. These costs can be assigned to the individual products by using a specific costing methods (see below).

These are the costs incurred before so called split-off point (point of separation). It is a point up to which joint processes are carried out and after which joint or by-products become separately identifiable and can be either sold or further separately processed.

Costs incurred after the split-off point (so called post-separation costs) can be easily identified with individual products, but joint costs need to be apportioned.

There are two general approaches depending on the type of products:

• if the products are of the same importance (= joint products) – common costs are allocated by using meaningful allocation base. More here.
• if the products are NOT of the same importance (= main and by product) - net realizable value (sales value) of by-product is deducted from the joint costs and the difference is used to value the main product. More here.