Question

What is the difference between joint costs and common costs?

Answer 1

Joint cost:

Joint cost is a cost incurred to produce two or more products from a single resource and are not easily traceable to products until point of separation is reached .

For example :

Company XYZ inputs 10000 pounds of raw material costing $ 2 per pound (single resource) .From the input , three products and one by product is produced as output namely X,Y,Z and by product A .

The cost incurred amounting to 10000*2 = $ 20000 is considered as joint cost which is incurred to produce many products.

Common cost:

Common cost is a cost incurred that are not directly related to production of any product but is commonly incurred for any process ,territory ,corporate as a whole ,function etc.

For example :

XYZ company manufactures  three products X,Y and Z .The corporate pays $ 200000 per month to Director as a salary .

The salary cost of director is considered as common cost as it is not related to any product but Incurred for a company as a whole .

The major difference between Joint cost and common cost is that Joint cost is incurred when multiple products are produced from single input or process whereas common cost is incurred to support efficient and effective operations of organization and they are not directly traceable to manufacturing of any product.