Weighted average method 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.
Which method of cost allocation is the most accurate?
The reciprocal method of support department cost allocation is the most precise method and therefore is used most often.
What method is most commonly used for allocating joint processing costs to joint products explain?
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 the 3 methods that joint costs can be allocated?
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.
Which is the simplest to perform among the methods of allocation of overhead?
Question: The managers at SailRite like the idea of using the plantwide allocation approach, but they are concerned that this approach will not provide accurate product cost information. Although the plantwide allocation method is the simplest and least expensive approach, it also tends to be the least accurate.
What should I put for allocation method?
Percent: The amount distributed to the account will equal the employee’s net pay multiplied by the allocation percentage you enter in the % field. For example, $1,000 x 20% = $200. The amount will fluctuate depending on net pay for the payroll period.
What is the typical approach to allocating joint product costs to products?
Two methods are commonly used to allocate these joint costs to the joint products: the physical quantities method and the sales value method.
Should we allocate joint costs among joint products?
The costs allocated to joint products and by-products should have no bearing on the pricing of these products, since the costs have no relationship to the value of the items sold.
How do you allocate joint costs using physical output method?
Joint Cost Allocation
To use this method, simply divide the total production cost by the appropriate measure of output volume to yield the cost per unit of output. One type of monetary measure of joint cost allocation is the sales value method.
Which type of costing do oil refining companies use?
process costing
When a product passed through different stages, cost of each stage need to be ascertained. In such cases , process costing is used. In case of refinery, there are various processes involved, hence process costing is involved.
What are joint costs examples?
A joint cost is a kind of common cost that occurs after a raw product, such as a sunflower crop, undergoes two separate production processes, reports Strategic CFO. For example, the cost of fertilizing and harvesting sunflowers qualifies as a common cost.
Which is an example of joint products?
Examples. The processing of crude oil can result in the joint products naphtha, gasoline, jet fuel, kerosene, diesel, heavy fuel oil and asphalt, as well as other petrochemical derivatives. The refinery process has variable proportions depending on the distilling temperatures and cracking intensity.
Why is step method better than direct method?
The step-down method is more accurate than the direct method, but less accurate than the reciprocal method. The reciprocal method is more accurate than the other two methods because it fully recognizes self services and reciprocal services between service departments.
What is the best allocation base for manufacturing overhead?
Though allocation bases can vary, the most commonly used are direct machine hours and direct labor hours. For a labor intensive manufacturing environment, direct labor hours is probably the most accurate base, while in a more automated manufacturing environment, machine hours is probably a better choice.
Why is it better to use separate overhead rates?
Within a large manufacturing business with departments ranging from sales to assembly to administration, separating overhead rates gives management a clearer picture of the price of production.
Why are joint costs allocated to individual products?
Reasons for Allocating Joint Costs to Individual Products
For cost reimbursement under contracts where not all the separable products go to a single customer so that allocation of the joint costs is necessary. For settlement of insurance claims involving separable products at or beyond split-off.
Under which method of allocation of joint costs even high quality items may have a lower price?
The splitoff method in cost accounting.
Which method allocates joint product costs on the basis of each product’s expected final sales value less any separable costs?
The estimated net realizable value method
The estimated net realizable value method allocates joint costs on the basis of the expected final sales value in the ordinary course of business less the expected separable costs of production and marketing.
Which method of cost allocation is least accurate?
The direct method is the least accurate method for service department cost allocation if there is interdependency among the service departments.
Which of the following methods is the most accurate among the three methods for allocating service department costs?
The reciprocal method is the most accurate of the three methods for allocating service department costs, because it recognizes reciprocal services among service departments. It is also the most complicated method, because it requires solving a set of simultaneous linear equations.
Which of the following will give you the most accurate allocation between a cost fixed component and variable component?
D. Proportion of total processing time for each operating department.
What is conceptually the most defensible method?
What is conceptually the most defensible method for allocating support-department costs? Why? The reciprocal method is theoretically the most defensible method because it fully recognizes the mutual services provided among all departments, irrespective of whether those departments are operating or support departments.
What is conceptually the most justifiable method for allocating support department costs Why?
The direct method is theoretically the most defensible method because it allocates each support department’s costs to operating departments only.
What is step down method of cost allocation?
Quote from video: But they're also providing support to each other. And so now with the step down method we're going to try and allocate some of those costs that that go between the support departments.