Joint production – explained simply 

Typical examples of joint production include:

• Pressing seeds for oil produces oil cake/animal feed
• Drying fruit produces animal feed
• Wine production generates pomace, which is used as animal feed or fertilizer
• Beer production generates spent grain, which is used as fertilizer

1. Fixed joint products

In fixed joint production, there is a constant ratio between the quantity of the main product and the by-products.

2. Flexible joint products

In flexible joint production, the quantity of products is largely variable.

The resulting joint products must also be transferred into inventory with quantities and prices. For this purpose, there are the distribution method, the net realizable value method, and the market value method.

How does the distribution method work?

In the distribution method, the total costs of all related products are allocated to the by-products as well as the main products according to defined criteria, usually technical or economic in nature. It is also referred to as the allocation method.

How does the net realizable value method work?

The net realizable value method focuses on cost and performance accounting. It is also referred to as the subtraction method. In joint production, costs are assigned to the respective products, with input costs charged to the main product. When the value of the by-products is subtracted, the result is the value of the main product.

How does the market value method work?

The market value method is used to allocate the costs incurred in joint production to the individual products. The basis for this is usually the contribution margin. It is also referred to as the allocation method or the equivalent number method.

From a business management perspective, joint products generate both costs and revenues – for example, when disposal costs arise or when heat is produced during manufacturing that the company can reuse. This is referred to as an economies of scope effect. If by-products are sold for further processing, the total costs of the main products are reduced by the by-product revenues. In this way, joint products can contribute to increasing profits.

A typical example is the production of cooking oil. When the oil is pressed, oil cake is generated as a joint product. This is then resold as animal feed.

Joint product costing is about distributing the total costs of the joint production process across the individual joint products. This ensures the entire process is accurately and transparently represented in terms of costs.

In the course of joint production, costs arise in connection with the joint products or from their composition – these are called joint costs. They are also often referred to as true overheads or join costs. Joint costs include all costs that occur jointly for different cost objects, regardless of their number.

Typical challenges in joint production include:

• Selecting the right materials that optimally fit together, which can cause issues in joint production – for example with weight and durability.
• Achieving precise shaping to ensure a uniform structure and an appealing appearance.
• The size of the joint product can become problematic, as special equipment is often required.
• The size and weight of joint products can also pose challenges for transport.
• Joint production often generates high costs, especially for customized designs.
• Accurate inventory data collection can be challenging. To achieve this, proper financial accounting assessments of further processing steps must be carried out.

The industry-specific ERP solution Yaveon 365 is the right choice for all companies in the process industry and offers numerous features that optimally support joint production.

• Cost management: By precisely recording material and production costs for each batch, the costs of individual joint products can be accurately calculated and analyzed. This enables targeted cost control and optimization.

• Advanced recipe management: Yaveon 365 allows detailed management and optimization of recipes, including consideration of by-products. This makes planning and controlling joint production easier and ensures that all resulting products are used efficiently.

• Production planning and control: With Yaveon 365, production plans can be created and monitored efficiently. This helps optimize plant utilization and ensures that the production of joint products is carried out in a synchronized and coordinated way.