Int. Acc. MA LECT 3: Cost allocation part 4: chapter6: Cost allocation:…
Int. Acc. MA LECT 3: Cost allocation part 4: chapter6: Cost allocation: joint-cost situations
Examining methods for allocating costs to jointly produced products.
are the costs of a single production process that yields multiple products simultaneously.
Situation in which companies produce two or more products at the same time during a single production process.
All costs (manufacturing, marketing, distribution, etc.) incurred beyond the split-off point that are assignable to one or more individual products.
The critical point in the production process where one or more products in a joint-cost setting become separately identifiable.
2 categories: outputs of a joint production process
1. joint product/main product
Result of a joint production process that yields only one product with a relatively high sales value.
E.g. beef steak, minced meat
Have relatively high sales value at the split-
off point (if multiple product have relatively high sales values)
Incidental products resulting from the processing of another product, relatively low sales value
E.g. parts of a cow that humans do not eat and are converted into dog food
Estimated NRV Method (I)
: 2 basic approaches to allocate joint costs
Allocate costs using market-based data such as profits.
The sales value at split-off method.
The constant gross-margin percentage NRV method.
The estimated net realisable value (NRV) method
Approach 2: Allocate costs in some physical measure- based data such as weight or volume.
Exercise 6.21 in tutorial 3