{"id":6758,"date":"2020-11-15T10:43:06","date_gmt":"2020-11-15T10:43:06","guid":{"rendered":"http:\/\/onlineclassesguru.com\/?p=6758"},"modified":"2020-11-15T10:43:06","modified_gmt":"2020-11-15T10:43:06","slug":"describe-the-three-methods-used-to-allocate-joint-costs","status":"publish","type":"post","link":"https:\/\/onlineclassesguru.com\/index.php\/2020\/11\/15\/describe-the-three-methods-used-to-allocate-joint-costs\/","title":{"rendered":"Describe the three methods used to allocate joint costs"},"content":{"rendered":"<style type=\"text\/css\"><\/style><p>Respond to\u2026<\/p>\n<p>Describe the three methods used to allocate joint costs.<br \/>\nCompanies that produce more than one product will usually have joint costs. According to Schneider (2017), \u201d the costs of materials and processing up until individual products are identifiable are referred to as joint costs\u201d (p. 180). There are three methods associated with allocating these types of costs; physical measures of output, relative sales value (RSV) and net realizable value (NRV). Each method is based on outputs and the split-off point of individual products. The simplest method is the physical measures of output are determined by the measurable physical features of each product to include; weight length volume etc., while the RSV method depends on the proportion of the products total sales value at the split-off point (Schneider, 2017). The physical measures of output is commonly used for a company that produces a several stock keeping unit (SKU), while RSV might be used by a jewelry store that sells a variety of precious stones and medals that each have their own value. On the other side of the spectrum is NRV, which is a product\u2019s maximum net amount, which can be received from the sale of that product with a short period of time (McKeown, 1972). The concept occurs when a when the costs of the product is subtracted from the market value.<br \/>\nWhat are the advantages\/disadvantages of each allocation method?<br \/>\nEach particular method has its pros and cons. For instance an advantage of the physical measures of output is its simplicity. However, what makes the method so simple can also be a disadvantage when dealing with products that differing physical features.<br \/>\nRSV is helpful as it provides the capability to regulate costs to ensure proper reporting ofcapital and asset losses, this can aid in managerial decision-making. However, this method depends on the availability of sales value. If not immediately available or not exact it can cause a business to defer to another method to determine the costs at the spilt-off point (Schneider, 2017). Because of this the NRV can has the advantage of helping with the void that could occur with RSV, but a con of this concept is that there are occasions were the product\u2019s NRV is negative causing the inability for joint costs to be allocated to the product.<br \/>\nWhich method would you recommend?<br \/>\nAs we can see there is no perfect method and the one used is really dependent on the products being produced. Therefore my recommendation on which method to used would be based on the business and what product is being produced. Also in some cases the product would allow the methods to be interchangeable. Therefore if one method is not benefiting the company it can switch to another that is more suitable.<br \/>\nReferences:<br \/>\nMcKeown, J. C. (1972). Additivity of Net Realizable Values.Accounting Review,47(3), 527 \u2013 532. Retrieved from http:\/\/search.ebscohost.com.proxy-library.ashford.edu\/login.aspx?direct=true&amp;db=bsh&amp;AN=4503171&amp;site=eds-live&amp;scope=site(Links to an external site.)<br \/>\nSchneider, A. (2017). Managerial Accounting: Decision making for the service and manufacturing sectors (2nd ed.) [Electronic version]. Retrieved from https:\/\/content.ashford.edu\/<\/p>\n<p>Respond to\u2026<\/p>\n<p>Joint cost is referred to cost that is collected during the processing phase, but doesn\u2019t produce an identifiable product. There are three allocation methods can be used when allocating joint cost. These methods are: physical measure of output, retaliative sales value and bet realizable value (Schneider, 2017).<br \/>\nPhysical measure of outputs is allocated by a unit of measurement and this can be either units, length, volume, weight, etc. It can be any unique identifier that is used to measure that substance. This method is very simplistic from an accounting standpoint, but one concern is difference units of measurement could cause issues in the future. Dependent on the chemical makeup of the product will determine what unit of measurement is used. It could be difficult and cause confusion when trying to convert each item to a simple unit of measurement.<br \/>\nThe relative sales value method takes product sales divided by total sales and multiplies by the joint cost. The goal is to allocate by the total sales at the split-off point. A positive attribute of this method is that if the allocation is done by a sales figure than the allocation will be extremely accurate because sales can be tied back to the product sold, but on the other hand there might be a lag in sales therefore that allocation method couldn\u2019t be done until sales are completed.<br \/>\nLastly, net realizable value\u2019s goal is to use approximations of the sales value to allocate the joint cost. NRV is calculated by taking revenues and subtract out the separable cost. This method allows to better trace a cost back to original product, but there are instances where the NRV is negative. If this were to happen no allocation can happen for that cost. This could slow down accounting procedure and take up unneeded space in capital.<br \/>\nPersonally I recommend using the physical measurement as the allocation method due to it\u2019s simplicity and the data is easily accessible. For the most part an industry will use simple units of measurement because they will be producing like products. By using this method there is no lag time waiting for sales numbers to comes through or projecting sales. The number of units is available immediately after production.<br \/>\nSchneider, A. (2017).Managerial Accounting: Decision making for the service and manufacturing sectors(2nd ed.) [Electronic version]. Retrieved from https:\/\/content.ashford.edu\/<\/p>\n<p><center><a href=\"http:\/\/onlineclassesguru.com\/orders\/ordernow\"><img decoding=\"async\" src=\"https:\/\/encrypted-tbn0.gstatic.com\/images?q=tbn:ANd9GcTyj99p60XCLyLk1htB7-1neRt8-2QdnenNlQ&usqp=CAU\"target=\"_http:\/\/onlineclassesguru.com\/orders\/ordernow\"\/><\/center><p>","protected":false},"excerpt":{"rendered":"<p>Respond to\u2026 Describe the three methods used to allocate joint costs. Companies that produce more than one product will usually have joint costs. According to Schneider (2017), \u201d the costs of materials and processing up until individual products are identifiable are referred to as joint costs\u201d (p. 180). There are three methods associated with allocating&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-6758","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v17.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Describe the three methods used to allocate joint costs - onlineclassesguru<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/onlineclassesguru.com\/index.php\/2020\/11\/15\/describe-the-three-methods-used-to-allocate-joint-costs\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Describe the three methods used to allocate joint costs - onlineclassesguru\" \/>\n<meta property=\"og:description\" content=\"Respond to\u2026 Describe the three methods used to allocate joint costs. 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