Joint Costs

When multiple products are provided from the same production unit, determining cost causation can be difficult. If products can be produced only in fixed proportion, they do not have separable incremental cost functions. In such cases, the incremental cost is the cost of the composite product. However, when the cost causation of multiple products can be separately determined for each product (through accepted methodologies), the process is viewed as involving common costs. For example, some overhead costs might be able to be linked to relative output levels.