This study examined the accounting treatment of joint product and its effects on profitability with particular reference to Bendel Brewery Limited. This study was carried out to investigate whether problems of joint cost, allocation of joint products, existed in manufacturing companies, with Bendel Brewery Limited as a case study, if it was established  that the problem existed, the research was also aimed at identifying the causes of decisions and attempts so far made by the company to solve the problems facing joint cost allocation in the manufacturing companies. In carrying out is investigation a research, questionnaire was drawn up. Information necessary to address the problems, where gathered, collected, analyzed and summarized around each research questions. From the available data analyze, it was indicated that the problems and that the problems, has some effects in this study indicated that no progress has been made  towards solving these problems of joint cost allocation in Bendel Brewery Limited and other firms in the Brewery industry. However, some recommendations were made to assist the company in solving the problems.


Title Page                                                         i

Certification                                                     ii

Dedication                                                       iii

Acknowledgement                                            iv

Abstract                                                           v

Table of Contents                                             vii   

Chapter One: Introduction                              1     

1.1      Background to the Study                         1             

1.2      Statement of Problem                              4             

1.3      Research Questions                                 4             

1.4      Objectives of the Study                            5             

1.5      Statement of Hypotheses                         6             

1.6      Significance of the Study                         8             

1.7      Scope of the Study                                   9     

1.8      Limitations of the Study                          10          

1.9      Definitions of Terms                                11           

Chapter Two: Review of Related Literature      14   

2.1      Introduction                                             14

2.2       Methods of Apportioning Joint Costs

to Products                                                      16

2.3      Why Allocating Joint Costs in a

Manufacturing Sector                                      23   

2.4      Approaches to Allocating Joint Cost to Product 24

2.5      Joint Products – Sell or Process Further          25

2.6      Joint Products to Service Organization            27

2.7      The Concept of Cost Allocation and

Costing System                                                        28

2.8      Cost Apportionment and Decision Making              29

2.9      Criteria for Cost Allocation Decision                        31

2.10  Joint Cost Allocation and Company’s

Profitability                                                      33

2.11  Accounting for Product Costing and

Income Measurement                                      36

2.12  Decision on product profitability                     52

2.13  Pricing decision of products                             57

2.14  Inter divisional inter company transfer            58   

2.15  Concept of by-produce costing                                 59

2.16  Treatment of bye-products and joint

products costing                                              62

2.17  Income tax law and the costing of joint


2.18  Organizational structure of Bendel Brewery Ltd 66

2.19  Production process                                          68

2.20  Department under production                                 69   

Chapter Three: Research Method and Design                

3.1      Introduction                                                     72   

3.2      Research Design                                              72   

3.3      Description of Population of the Study            73   

3.4      Sample Size                                                     74   

3.5      Sampling Technique                                                74   

3.6      Sources of Data Collection                               74   

3.7      Method of Data Presentation                           75   

3.8      Method of Data Analysis                                  79   

Chapter Four: Data Presentation, Analysis

and Interpretation                                                   

4.1      Introduction                                                     77   

4.2      Presentation of Data                                        77   

4.3      Data Analysis                                                   77

4.4      Hypothesis Testing                                          96   

Chapter Five: Summary of Findings, Conclusion

and Recommendations                                          

5.1      Introduction                                                     109 

5.2      Summary of Findings                                      109

5.3      Conclusion                                                       112

5.4      Recommendations                                           113 

References                                                       117

Appendix                                                         119

Questionnaires                                                120




1.1   Background to the Study

A lot of industries concerns are often confronted with the difficult and complicated problems of allocating costs to their joint product, which obviously is an inescapable problem in nearly every organization and in nearly every fact accounting for product costing purposes. The major problem in joint costing is apportioned the joint costs, i. e those prior to the split-off point, on an acceptable, basis.

Okolie (2005) the following are the methods of apportioning, joint costs.

a.     Physical Quantity Basis: The Joint cost is apportioned, according to the quantity of the products. This may be in terms of units, volume, weight, etc.

b.     Sales Value: This sales value at the split-off point is used to apportion the cost.

c.     Notional Sales Value: This arises as a result of the joint products not having market value at split-off points, because they need to be processed further.

Because joint products arise due to the inherent, nature of the production process, it follows that none of the products can be produced separately. The various products become identifiable at a point known as the “split-off point”. Up to that stage all costs are joint costs, subsequent to the split-off point any costs incurred can be identified with specific, products and they are known as “subsequent” or additional processing costs”

Joint cost allocations are used for four essential purposes in allocating cost to their joint products.

They are stated as follows:

i.            To provide information for economic decisions

ii.          To motivate manager and other employers

iii.        To justify cost or compete reimbursement

iv.         To measure income and assets for reporting to external parties, etc.

Management apart from comparing the performance of individuals units within the organization finds it useful to compare the performance of individual, products, and the extent to which each product contributes to the entire profitability of the organizational, goals or objectives which is the primary aim of every organization and for decision making.

Techniques such as profitability measures and returns on investment require costs and revenue to be assigned to divisions and products and therefore the need for an appropriate method of allocation joint costs to products. According to Horngren T Foster, G & Datar, M. (2001:538) Two basic methods are used to allocate joint costs.

Method One: Allocate costs using market based data such as revenues; this method illustrates three methods that use this approach.


Ø    Sales value at split-off method

Ø    Estimated net realizable value (NRV) method.

Ø    Constant gross-margin percentage (NRV) method.

Method Two: Allocate costs using physical measure, based data such as weight or value.

1.2   Statement of Problem

The study is concerned with the accounting treatment, of joint product, costs and its effect on profitability given the various methods of allocating joint cost and insufficiency of data in the use of some of those methods. The research therefore wants to appraise the justification for the choice of the method used in allocating joint products cost in the Brewery industry.

1.3   Research Questions

The following are some of the research questions:

i.            Is there a problem of allocating joint cost to product in the industry?

ii.          What are the likely causes of the problems?

iii.        What are the effects of those problems on the company’s profitability?

iv.         What criteria might be used to guide cost allocation decision?

v.           What are the basic methods used for the selection of the methods of allocating joint costs to products in the industry?

vi.         Should joint-cost be apartment why?

1.4   Objectives of the Study

“Bendel Brewery Limited” is a growing company in the brewery industry. Given the importance of cost analysis is management decision and its effects on profit ability, in a company producing joint products in basic objective of the study, therefore includes the following.

i.            To investigate whether there is a problem of allocating joint costs to products in the brewery industry;

ii.          To be able to determine the cost of allocating joint products in the brewery industry;

iii.        To allocate cost per unit of usage and to promote effective resource usage in the industry;

iv.         To provide information for economic decision

v.           To faster cost awareness and to identify also causes of the problem of allocating joint cost to products to the industry.

vi.         Apportioning the joint costs effectively so as to increase the profitability of the business.

vii.       To reduce cost of production, etc.

1.5   Statement of Hypotheses

This part of the research work would have some corrections with the statement of the research problem. Research hypothesis is a testable statement regarding, the relationship between two or more variable that are inductive reasoning is based on incomplete knowledge of facts of the instruction of person whims (Aigbokhaevbolo & Ofanso, 2002:23-24). The following hypotheses are stated to obtained answers to the study’s research questions. They are the test of hypothesis under alternative “Hi: and Null “Ho”

Hypothesis One

Ho:  Joint products are not separated during the course of processing

HI:    Joint products are usually separated during the course of processing

Hypothesis Two

Ho: The problem of allocating joint product costs does not have any positive effects on the company’s profitability.

HI:    The problems of allocating joint product costs have any positive effects on the profitability of company.

Hypothesis Three

Ho: Joint products need not be apportioned for income measurement purposes.

Hi:   Joint product should be apportioned for income measurement purposes.

1.6   Significance of the Study

The relevance of this study is to examine how joint product costs and cost-allocation decisions have effects in a company’s profitability as an important tool for management decision making in Bendel Brewery Limited, Benin City.

The result of this study will not only be of great value to the staff and management of Bendel Brewery Limited, but also to other staff and management of the entire Brewery Industry. It also seeks to highlight the importance of effective cost-allocation of joint product costs and management of finance in other breweries.

This project work would also be relevant to small and large scale business ventures as it will help in the prudent management of the allocation resources and also for students who are interested, they will be equipped more on the understanding of joint product costs and cost-allocation in the brewery industry.

Also, management of any other business organization outside the industry and other research work are very useful to their field of study.

Finally, the findings and recommendations of this study will be of immense benefits to the brewery industry at large.

1.7   Scope of the Study

This research work was carried out in the year 2005; it is deemed to have covered the company’s affairs from 2005 to date regarding the treatment of joint product costs and its effects on profitability, using Bendel Limited, Benin — City as a case study.

The scope of this research work also covers the following areas of joint product cost: Cost allocation and costing system, methods of apportioning joint costs, joint cost allocation in the oil patch and income measurement etc.

A detailed analysis of the company’s strengths weakness, opportunities and threat (SWOT) will be undertaken. Operational data about the company will be collected and analyzed.

1.8   Limitation of the Study 

It is necessary to highlight some of the hindrance encountered in the course of carrying out this research work. These include.

i.      Insufficient time used using the research process by the researcher due to short semester period and creating time for the execution of school assignment within the specific time given out to carry out the research work.

ii.     Inability of the researcher to get reference materials in form of textbooks, journals and information boarding by management of the company.

Inspite of these constraints, the researcher has to remark that the study has a good degree of validity.



1.9   Definition of  Terms

There are dependent and independent variables that will be used in this study. The understanding of these relevant terms is very important; others will be explained in subsequent chapters. They include the following:

Joint Products: This is the term used when two or more products arise simultaneously in the course of processing each of which has a significant sales value in relation to each other.

By-Products: Is a product which arises incidentally in the production of the main product(s) and which has a relatively small sales value compared with the main product(s).

Joint Costs: These are the cost of a single production, process that yields multiple products simultaneously

Split-off Point: The juncture of manufacturing where the joint products become individually identifiable.

Separable Costs: Any costs beyond the split off point.

Sunk Cost: A cost that has already been incurred and therefore, is irrelevant to the decision making process.

Main Product: When a joint production process yields only one product with a relatively high sales value

A Product: This refers to an output that has a positive net sales value or an output that enables an organization to avoid incurring costs.
Profitability Ratio: These measure management overall effectiveness as shown by the returns generated or sales and investment.

Incremental Cost: This is the cost incurred on a joint product after the split-off point as a result of further processing.

Incremental Revenue: This is the added revenue derived as a result of processing a joint product further after its split-off point.

Cost Allocation: This can be defined as: “To assign a whole item of cost, or of revenue, to a single cost unit, centre, account or time period”. (Lucey, 2004:12)

Order Complete Project