explain the "net realisable value" (NRV) method approach to allocate joint costs

Expert Solution

The net realizable value method is one of the several methods used for allocating joint costs incurred prior to the split-off point to the various joint products produced.

The net realizable value method is used for allocating joint costs to products when one or more of the joint products produced cannot be sold at the split-off point but needs further processing and incurring of separable costs in order to make it ready to be sold.

Under this method, the joint costs are allocated to the joint products on the basis of a hypothetical sales value since a sales value may not be available at the split-off point for products that need further processing. The hypothetical sales value is computed by deducting the separable costs incurred after the split-off point from the market price. The joint costs are then allocated amongst the joint products according to their computed hypothetical sales value.

ekkarill92 answered 1 year ago

Explain the "Net Realisable Value" (NRV) method approach to allocate joint costs. [8 marks]

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