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 Constant gross-margin percentage NRV method in which a set or same percentage of margin issued to products and subtract the separable costs to arrive at the joint cost amount.

The further short explanations for these joint cost allocation methods are as follows:

Physical Unit method:

                The Physical Unit method of allocation joint costing is use for separable products and costing is based on the weight allocated to each portion of the production. The formula for the Physical Unit method is as follows:

Sales-Value at Split-Off method:

                Sales-Value at split-off method is based on separate products relative proportion of total sales value ultimately attributable to the period of production and the resultant is multiplied by total joint cost.

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 salable are subtracted before the allocation is made and then multiplied by joint cost.

Constant gross-margin percentage NRV method:

                According to this method same gross margin percentage for all of the products. Then we find out the overall gross margin percentage and subtract the appropriate gross margin form the final sales value of each product to calculate total coasts for the product and at last to subtract the separate costs to arrive at the joint cost amount.

That’s are the some of the Joint Cost allocation methods and their short explanations during writing over this topic I tried my best to make it understandable for my readers and tried my best to write the easy key words and sentences to make all the key terms and wording for them. The whole topic and and relevant  formulas are helpful to the general readers, professional  and students.

“The topic is taken from the Sub Unit No: 03 Cost Management terminology and concepts from the book of Gleim 15^th edition which is very helpful to the CMA-USA Certification Seekers.”