17.3 Approaches to allocating joint costs Flashcards
2 approaches to allocate joint costs
- allocate joint costs using market based data such as revenues
2.allocate joint costs using physical measures, such as the weight, quantity (physical units), or volume of the joint products
3 method to allocated joint costs using market based data such as revenue
- sales value at splitoff method
- NRV method
- constant gross margin percentage NRV method
do managers favor allocating joint costs using market based data or using physical measures
market based
bc revenues are in general a better indicator of benefits received than physical measures
is joint or main product represented by a oval or a rhombus
oval
is a byproduct represented by a oval or rhombus
rhombus
allocated joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point
sales value at splitoff method
- the sales value at splitoff method follows this creiterion of cost allocation
- costs are allocated to products in proportion to their revenue generating power (their expected revenues)
- this method requires selling prices for all products at the splitoff point
benefits-received criterion of cost allocation
allocates joint costs to joint products produced during the accounting period on the basis of a comparable physical measure, such as relative weight, quantity, or volume at the splitoff point
physical measure method
- under benefits received criterion, the _______ method is much less desirable
physical measure method
why would physical measure method be less desirable
the phsyical measure of the individual products may have no relationship to their respective revenue generating abilities
(mine extracts gold, silver, and lead. using common phsyical meausure (tons) would result in almost all costs being allocated to lead, the product that weighs the most but has the lowest revenue generating power)
byproducts are also often excluded from the _____ method because of their low sales values relative to the joint products or the main product
physical measure
the general guidelines is to include only the physical measures of joint product outputs in the
weighing computations
allocated joint costs to joint products produced during the accounting period on hte basis of their relative this
NRV method
NRV equation
NRV =
final sales - seperable costs
NRV method is typically preferred to the sales value at splitoff method only when
selling prices for one or more products at splitoff do not exist
allocates joint costs to joint products produced during the accounting period in such a way that each individual product achieves an identical gross margin percentage
constant gross margin percentage NRV method
- this method works backwards by first computing the overall gross margin
- they for each product, the gross margin percentage and any seperable costs are deducted from the final sales value of production to back into the joint cost allocation for that product
constant gross margin percentage NRV method
3 steps to the constant gross margin percentage NRV method
- compute the overall gross margin percentage
- compute the total production costs for each product
- compute the allocated joint costs
under the first step of the constant gross margin percentage NRV method
1. compute the overall gross margin percentage
calculate the overall gross margin percentage for all joint products together based on the final sales value of ________ during the accounting period, not the total revenues of the period
total production
gross margin during step 2: compute the total production costs for each product
under the constant gross margin percentage NRV method equation =
gross margin =
overall gross margin percentage * products final sales value of total production
total production costs of the product during step 2: compute the total production costs for each product
under the constant gross margin percentage NRV method equation =
total production costs of the product =
final sales value of total production - gross margin
joint cost allocated to the product during step 3: compute the allocated joint costs
under the constant gross margin percentage NRV method equation =
joint cost allocated to the product =
total production costs - seperable costs
is the only method where products can receive negative allocations
constant gross margin percentage NRV method
only method that allocates both joint costs and profits
constant gross margin percentage NRV method
