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Journal Information The Accounting Review is the premier journal for publishing articles reporting the results of accounting research and explaining and illustrating related research methodology. The scope of acceptable articles embraces any research methodology and any accounting-related subject. The primary criterion for publication in The Accounting Review is the significance of the contribution an article makes to the literature. Publisher Information The American Accounting Association is the world's largest association of accounting and business educators, researchers, and interested practitioners. A worldwide organization, the AAA promotes education, research, service, and interaction between education and practice. Formed in 1916 as the American Association of University Instructors in Accounting, the association began publishing the first of its ten journals, The Accounting Review, in 1925. Ten years later, in 1935, the association changed its name to become the American Accounting Association. The AAA now extends far beyond accounting, with 14 Sections addressing such issues as Information Systems, Artificial Intelligence/Expert Systems, Public Interest, Auditing, taxation (the American Taxation Association is a Section of the AAA), International Accounting, and Teaching and Curriculum. About 30% of AAA members live and work outside the United States. Rights & Usage This item is part of a JSTOR Collection. This page does not provide the detailed explanation of joint cost allocation methods but provides you a list of four methods that manufacturing organizations commonly use to allocate their joint production cost among various products. To find the detailed explanation and example of each method, click on the links provided with the name of the method in the list. As defined earlier in this chapter, the term joint cost (or joint production cost) refers to the cost incurred upto split-off point (the point at which various products emerge from a joint production process in their separately identifiable form). In most of the cases, the organizations need to assign or allocate joint costs to individual products for various purposes such as computing cost of inventory, cost of goods manufactured and cost of goods sold. Any cost incurred on a particular product after split-off point belongs to that particular product and is not allocated to any other product. Methods to allocate joint production costA true joint cost has a characteristic of indivisibility. The methods used to apportion or allocate a joint cost are therefore arbitrary and not perfect. The four acceptable joint cost allocation methods are given below: 1. Market or sales value methodThe market or sales value method allocates a joint production cost on the basis of relative market or sales values of individual joint products. Read more about market or sales value method 2. Quantitative or physical unit methodThis method uses some physical measurement units (such as volume, weight etc.) to allocate joint production cost. Read more about quantitative or physical unit method 3. Average unit cost methodThe average unit cost method, as the name implies, uses average unit cost to allocate the cost before split-off point. Read more about average unit cost method 4. Weighted average methodThis method assigns predetermined weight factors to joint products based on various factors such as price, production complexity and unit size of the product. Read more about weighted average method The joint cost allocation using above methods is mostly not perfect, but is considered an arbitrary allocation. The information derived from such arbitrary allocation is therefore rarely helpful to the management. The method selected to allocate joint cost should be the most appropriate, easy to employ and defensible in case the auditors review and require any clarification of the joint cost allocation. More from Joint products and by-products (explanations): Terms in this set (76)Using the direct method, Pone Hill Company allocates Janitorial Department costs based on square footage serviced. It allocates Cafeteria Department costs based on the number of employees served. It has the following information about its two service departments and two production departments, Cutting and Assembly: Using the reciprocal services method, which of the following equations represents the algebraic expressions for the two equations needed to capture the total costs of a Janitorial
Department (J) that includes not only $350,000 of direct costs but also 30% of the Maintenance Department (M) cost and the Maintenance Department that includes not only $50,000 of direct costs but also 50% of the Janitorial Department? Using the reciprocal services method, which of the following equations represents the correct algebraic expression to determine Janitorial Department costs when the total costs of the Janitorial Department (J) include not only $500,000 of direct costs but also 25% of the Maintenance Department (M) cost and the Maintenance Department includes not only $450,000 of direct costs but also 30% of the Janitorial Department? (Hint: This equation is derived from the two separate
equations representing each department's costs.) Using the reciprocal services method, which of the following equations represents the correct algebraic expression needed to capture the total costs of a Janitorial Department (J) that includes $350,000
of direct costs and 30% of the Maintenance Department (M) cost and the Maintenance Department that includes $50,000 of direct costs and 50% of the Janitorial Department? (Hint: This equation is derived from the two separate equations representing each department's costs.) Using the reciprocal services method, which of the following equations represents the algebraic expressions for the two equations needed to capture the total costs of a Janitorial Department (J) that includes not only $500,000 of direct costs but also 25% of the Maintenance Department (M) cost and the Maintenance Department that includes not only $450,000 of direct costs but also 30% of the Janitorial Department? Using the sequential method, Pone Hill Company allocates Janitorial Department costs based on square footage serviced. It allocates Cafeteria Department costs based on the number of employees served. It has determined to allocate Janitorial costs before Cafeteria costs. Using the direct
method, Pone Hill Company allocates Janitorial Department costs based on square footage serviced. It allocates Cafeteria Department costs based on the number of employees served. It has the following information about its two service departments and two production departments, Cutting and Assembly: Using the sequential method, Pone Hill Company allocates Janitorial Department costs based on square footage serviced. It allocates Cafeteria Department costs based on the number of employees served. It has determined to allocate Janitorial costs before Cafeteria costs. Using the sequential method, Pone Hill Company allocates Janitorial
Department costs based on square footage serviced. It allocates Cafeteria Department costs based on the number of employees served. It has determined to allocate Janitorial costs before Cafeteria costs. Students also viewedWhat are the four common methods for allocating joint costs?Three methods of allocating joint product costs are the physical units method, the market value method, and the net realizable method. The constant gross margin percentage method is also used to allocate joint cost. 8. Joint costs occur only in cases of joint production.
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.
Which method is the best for joint cost allocation?Survey Method / Points Value Method
Under this method joint costs are apportioned over the joint products, on the basis of percentage/point values, assigned to the products according to their relative importance. This method is considered to be more appropriate than other methods.
What are the methods of apportionment of joint cost?Joint costs are apportioned in the ratio of net realisable value. The net realisable value at split-off point method is widely used in the industries. This method is used when the realisable value of joint products at split-off is not known.
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Which of the following are the four common methods for allocating joint costs?
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