Physical units method
The physical units method allocates joint costs to products in proportion to their share of total physical output, measured in a common unit such as litres or kilograms. Simple to apply, it ignores differences in market value.
FrameworkJoint product costing
See it move
A process yields 600 litres of Product A and 400 litres of Product B from a joint cost of €50,000. The physical units method allocates by volume share alone: A takes 60% — €30,000 — and B takes 40% — €20,000 — regardless of what either product sells for. If B is worth far more per litre than A, this split distorts each product's true unit cost and margin.
The formula
Variables
- physical output quantity of product i at the split-off point, measured in a common unit (litres, kg, units, etc.) (physical units)
- total physical output of all joint products at split-off, in the same unit (physical units)
- total joint cost incurred before the split-off point (€)
All products must be expressed in the same physical unit. The method ignores market value, so products with similar volumes but very different selling prices absorb the same cost per unit of output.
Check yourself
A chemical company's distillation process produces three joint products per batch: 600 kg of Product X, 300 kg of Product Y, and 100 kg of Product Z. Joint costs per batch total €40,000. Using the physical units method, how much joint cost is allocated to Product Y?