Describe the three methods used to allocate joint costs. What are the advantages/disadvantages of each allocation method? Which method would you recommend? Why?
Allocating Joint Costs
Describe the three methods used to allocate joint costs.
The three methods are the (1) physical units at split off, (2) the relative sales value at split off and (3) estimated net realizable value or "NRV" method (final selling price less the cost to process after the split off point).
The physical units method uses the quantity of physical units, such as gallons, to spread the joint costs to all the gallons produced, regardless of their value. This typically would ignore by-products. The relative sales value at split off uses the to sales value at split off to spread the joint costs to all the items at the end of the joint costs, including any sellable by-products. This method would ignore processing after split-off, if any. The NRV method using the final selling price anticipated after processing beyond the split-off point (when joint ...
Your discussion is 579 words and a textbook reference and gives the pros and cons of the three methods of allocating joint costs, explains the three methods and suggests a method with a rationale.