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Discuss the three common methods for allocating joint product cost.

Discuss the three common methods for allocating joint product cost.

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Expert Solution

Followings are the three common methods for allocating joint product cost;

1. Physical measurement method;

Under this method, joint product costs are allocated on the basis of quantity produced. Under this method we need to know total production and quantity of individual product as well.

Following is the formula of allocating joint product cost;

Joint cost allocated to individual product = Total joint cost * (Quantity of individual product / Total production)

2. Relative sales value method;

Under this method, joint product costs are allocated on the basis of value of sales. Under this method we need to know total sales value and sales of individual product as well.

Following is the formula of allocating joint product cost;

Joint cost allocated to individual product = Total joint cost * (Sales of individual product / Total sales)

3. Net realizable value method;

Under this method, joint product costs are allocated on the basis of Net realizable value of production. Under this method we need to know total production and product of individual product as well.

Following is the formula of allocating joint product cost;

Joint cost allocated to individual product = Total joint cost * (NRV of individual product / NRV of total production)

ekkarill92 answered 8 months ago
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