Joint production simply explained

Typical examples of joint production are:

• Pressing seeds for oil produces pomace/animal feed
• Drying fruit produces animal feed
• Wine production produces pomace, which is used as animal feed or fertilizer
• The production of beer produces spent grains, which are used as fertilizer

1. Fixed co-products

In fixed joint production, there is a fixed ratio between the quantity of the main product and the byproducts.

2. Flexible co-products

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

The resulting co-products must also be transferred to the inventory with quantities and prices. The distribution method, the residual value method and the market value method are used for this purpose.

How does the distribution method work?

In the distribution method, the total costs of all related products are allocated to the by-products and main products according to defined specifications, usually of a technical or economic nature. It is also referred to as market value calculation.

How does the residual value method work?

The residual value method focuses on cost and activity accounting. It is also known as the subtraction method. In joint production, the respective costs are allocated to the products, whereby the input costs are allocated to the main product. If the value of the by-products is then 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 of co-production to the individual products. This is usually based on the contribution margin. It is also referred to as the distribution method or equivalence number method.

From a business perspective, co-products result in costs and revenues, for example if costs are incurred during disposal and heat is generated during production that the company can use. This is also referred to as material bundling effects. If the byproducts are sold for further processing, the total costs of the main products are reduced by the byproduct revenues. It is therefore possible for co-products to increase profits.

A typical example of this is the production of cooking oil. If this is pressed, the by-product is press cake. This is sold on as animal feed.

The aim of joint costing is to distribute the total costs of the joint production process to the individual joint products. This ensures that the entire process is clearly mapped and transparent in terms of costs.

In the course of joint production, costs are incurred in addition to the joint products or from their composition, so-called joint costs. They are often also referred to as genuine overheads or join costs. Joint costs include all costs that occur jointly for different reference objects. The number is irrelevant.

Typical challenges for joint production are:

• Choosing the right materials that fit together optimally can create problems in joint production. For example, weight and durability.
• Precise shaping to achieve a uniform structure and an attractive appearance.
• The size of thedome product can become a problem, as special equipment is often required.
• Thesize and weight of dome products can also be a challenge for transportation.
• Joint production often generates high costs, especially for customized designs.
• Clean inventory data collection poses challenges for companies. To achieve this, proper financial accounting assessments of further work steps must be initiated.

The Yaveon 365 industry-specific ERP solution is the right solution for all companies in the process manufacturing industry and offers numerous functions that provide optimum support for joint production.

• Cost management: By precisely recording material and production costs for each batch, the costs of the individual co-products can be accurately calculated and analyzed. This enables targeted cost control and optimization.
• Advanced recipe management: Yaveon 365 enables detailed management and optimization of recipes, including consideration of byproducts. This facilitates the planning and control of joint production and ensures that all resulting products are used efficiently.
• Production planning and control: Yaveon 365 allows production scheduling to be created and monitored efficiently. This helps to optimize plant capacity utilization and to synchronize and coordinate the manufacture of co-products.