Which method of accounting for by products allocates a portion of joint costs to the by product?
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See Also: Joint Costs DefinitionIn accounting, a joint cost is a cost incurred in a joint process. Joint costs may include direct material, direct labor, and overhead costs incurred during a joint production process. A joint process is a production process in which one input yields multiple outputs. It is a process in which seeking to create one type of output product automatically also creates other types of output product. Joint Process ExamplesJoint processes are production processes in which the creation of one product also creates other products. It is a process in which one input yields multiple outputs. Joint production processes are common in the agriculture industry, the food manufacturing industry, and the chemical industry. Joint Cost AllocationAllocate joint costs to the primary output products of the joint process, not the incidental byproducts or scrap. Allocate them using a physical measure or a
monetary measure.
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JOIN OUR NEXT SERIES Financial Leadership Workshop THE ART OF THE CFO® Financial Leadership Workshop What method is most commonly used for allocating joint processing costs to joint products?The two major methods of allocating joint costs are (1) the net realizable value method and (2) the physical quantities method. The net realizable value method allocates joint costs to products based on their net real- izable values at the split-off point.
What are common methods for allocating joint costs?There are four commonly used methods for allocating joint costs: ... . Sales Value at Product Yield Split-off Point Added Costs Price per lb. ... . Oil. ... . Oil. ... . Oil Sugar Meal Chaff. ... . b. ... . NRV under Multiple Split-Off Points: An Example of the Backward-Forward.. What is allocation of joint cost?Joint Cost Allocation
The physical measure allocates joint costs to primary products based on a physical characteristic, such as units produced, or pounds or tons produced, barrels produced, or some other physical measure that is appropriate for the volume of output of the primary products.
How does the net realizable value method allocate joint costs?Under the net realizable value method, joint costs are allocated based on the total sales value less costs that can be separable for each product. Once you have the net realizable value for each product, you need to figure out what percentage the net realizable value is out of the total amount.
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