Estimated net realizable value method:

According to this joint cost allocation method, there is a variation of the relative sales value method. The difference is total under the NRV method all costs which are already separate necessary to make the product saleable are subtracted before the allocation is made and then multiplied by joint cost.

For explaining this method we have many examples but the example which I am going to give there that is from the Oil sector. The Oil rigging is a process to produce the oil which a natural resource but during the producing process there are many other by products which we abstract from this process the oil companies use the same resources but with the different production costs which are actually joint costs with each other. That example helps us to understand these methods.

“Gleim’s book 15^th edition for the CMA-USA students and Professionals is the source of all the examples and this topic”

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Joint Cost allocation methods:

Joint cost allocation means to allocate the cost for those products which require the same kind of raw material and part of a same manufacturing process. But at the end of the result two or more than two final products we have form this manufacturing activity. Each product require the almost same material but the cost allocations to them is different during the manufacturing activities. There are many different methods the product based organizations using in their manufacturing processes. The mostly known are Physical unit method in which each portion allocates the costs as per the activity weight. Sales- Value at Split-Off method in which the cost allocations to the activities over the sales of the products. The other two methods are estimated net realizable value method, and...

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