Textbook Notes (368,241)
Canada (161,733)
MGAC03H3 (13)
G.Quan Fun (10)
Chapter 15

Chapter 15 Notes

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Department
Financial Accounting
Course
MGAC03H3
Professor
G.Quan Fun
Semester
Winter

Description
Chapter 15 Cost Allocation Joint Products and ByProducts NotesJointCost Basicsjuncture in the process when one or more products in a joint cost setting become separately identifiably is called the splitoff pointseparable costs are costs incurred beyond the splitoff point that can be assigned to one or more individual productsat or beyond the splitoff point decisions relating to sale or future processing of individual products can be made independently of decisions about other productsApproaches to Allocating Joint Coststhere are two basic approaches to allocating joint costsoapproach 1 allocate costs using marketbased data 3 methods that can be used are 1 sales value at splitoff method 2 estimated net realizable value NRV method and 3 constant gross margin percentage NRV methodoapproach 2 allocate costs using physicalmeasurebased data such as weight and volumeComparison of Methodsbecause the costs are joint in nature managers cannot use the causeandeffect criterion in making this choicethe benefitsreceived criterion leads to a preference for the sales value at splitoff point methodadditional benefits of this method include the followingoNo anticipation of subsequent management decisions The sales value at splitoff method does not presuppose an exact number of subsequent steps undertaken for further processingoAvailability of meaningful common denominator to compute the weighting factors The denominator of the sales value at splitoff method dollars is a meaningful one In contrast the physical measure method may lack a meaningful common denominator for all the separable productsoSimplicity The sales value at splitoff method is simple In contrast the estimated NRV method can be very complex in operations with multiple products and multiple splitoff points The total sales value at
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