Grab the Details of Approaches to Allocating Joint Costs from Our Mentors
Joint cost is an essential term decides to cost products that manufactured at a time. Allocating and approaches to allocating joint cost need proper knowledge because there are many basic factors that manufacturers need to keep in mind. For students, it is important to go through each term to clear their concept.
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What do you mean by joint costs?
Joint cost is the cost that is given to the products manufactured jointly. You can say that there is not main product to which you can make pricey. Or, each product is main product at the time as there is not any by-product. Allocating cost depends on different basic factors as well as some other factors.
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What should you know before allocating cost?
Features of joint product is very important, and for that, you must know the following points –
- Production of joint products is the prime motto for manufacturer.
- Raw materials and direct labor charges along with other direct charges are important to know as these are input.
- When allocation for costs takes place, then this is free from further process. So, joint cost allocation done on the basis of till expenditure, but it requires further methodologies.
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What are the approaches to allocating joint costs?
There are three different approaches to allocating joint costs and these methods are –
- Physical Measurement method –
Here, approaching does on the basis of physical quantity as length, weight, and volume of each product. It is also true that the production outputs must be similar in this case. For example, pain of different shades gets obtained by means of single process.
- Relative sales value method –
This is an approach that takes place on the basis of sales value estimation. When physical quantity or measurement value is not responsible, then this method takes place.
The formula for this is –
Cost allocated to a joint product = Sales value of product/ sales value of total production x Total joint cost
- NRV or net realizable value method –
This method is perfect for many products as it focuses on additional cost that is important to further process and then becomes ready to sell joint products.
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