1. “What is the joint cost? Explain why joint costs have to be allocated to various...

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Accounting

1. “What is the joint cost? Explain why joint costs have to beallocated to various products. List the four basic methods ofallocating joint costs to joint products and discuss in details.Identify what a by-product is with examples.”
2. “Significance of Joint Cost Allocation with Arguments infavor and Against “Discuss the Statement.

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1 Joint products are two or more products produced simultaneously by the same process A joint cost is a cost of a production process that yields multiple products simultaneously A separable cost is a cost incurred beyond the splitoff point that is assignable to each of the specific products identified at the splitoff point Joint cost allocations must be done for financial reporting purposes to value inventory and to determine income An allocation method must be found though arbitrary to allocate the joint costs as reasonably as possible Allocation based on the relative market value using the following methods Salesvalueatsplitoff method Net realizable value method Constant gross margin percentage method Salestoproductionratio method 1 SalesValueatSplitOff Method a The salesvalueatsplitoff method allocates joint cost based on each products proportionate share of market or sales value at the splitoff point b In this method the higher the market value the greater the joint cost assigned to the product 2 Net Realizable Value Method a The net realizable value method allocates joint costs based on hypothetical sales values because there may not be a ready market for the product at the splitoff point b This method is particularly useful when one or more products cannot be sold at the splitoff See Answer

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