What are the pros and cons of the joint cost allocating method, called physical output method, and net realizable value method?
Describe what industries would use either job costing or process costing and explain why.
What are the pros and cons of joint cost allocation method called physical output method and net realizable value method?
Joint costs are those costs incurred by the company for producing two or more products simultaneously from the same production process and these products are not separable till the production process reaches the particular point. These costs need to be allocated to the joint products on some rational basis. Physical units method and net realizable value method are the methods for allocating the joint costs to the joint products.
Physical units method:
Under this method the joint costs are allocated on the basis of physical measure of the products. Examples of physical measures are pounds, kilograms, liters, etc. Take the following example.
Three products A, B and C are joint products manufactured simultaneously from the single process and the joint costs for these three products are $150,000. The number of units produced is:
TOTAL UNITS 50000
Therefore, the joint costs under physical units method are allocated as follows:
This solution provides a detailed comparison of joint cost, called physical output and net realizable value methods.