Scribd
Upload
412 views1 page

Afar 1 - Theories

This document outlines five different theories for allocating joint manufacturing costs to main and joint products. The first theory allocates costs based on estimated sales value at split-off, the second uses hypothetical or approximated net realizable value, the third uses production output such as weight or units, and the fourth uses a weighted average of factors like materials and labor. The fifth theory discusses how to account for a by-product's net realizable value, recommending it be deducted from total costs if significant or recorded at point of sale if insignificant.

Uploaded by

Angela Miles Dizon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
412 views1 page

Afar 1 - Theories

This document outlines five different theories for allocating joint manufacturing costs to main and joint products. The first theory allocates costs based on estimated sales value at split-off, the second uses hypothetical or approximated net realizable value, the third uses production output such as weight or units, and the fourth uses a weighted average of factors like materials and labor. The fifth theory discusses how to account for a by-product's net realizable value, recommending it be deducted from total costs if significant or recorded at point of sale if insignificant.

Uploaded by

Angela Miles Dizon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

AFAR 1

THEORIES:
1. This method of allocating joint manufacturing costs to main/joint products allocates joint costs on the
basis of estimated sales value at split off of a given joint product relative to the sales value at split off
of total joint production.
MARKET VALUE AT SPLIT-OFF APPROACH

2. For products that need further processing, this method is more suitable because it takes into account,
the additional costs needed to further process and sell the joint products. Under this method of
allocating manufacturing costs to man products, joint cost is allocated to products using the following
net realizable value ratio of the products.
HYPOTHETICAL MARKET VALUE or APPROXIMATED NET REALIZABLE VALUE APPROACH

3. This method of allocating joint manufacturing costs to main/joint products allocates joint costs based
on number of units or physical quantity such as weight, volume, length of each product relative to
total production.
AVERAGE UNIT or PRODUCTION OUTPUT METHOD

4. This method of allocating joint manufacturing costs to main products allocates joint cost based using
the weight factors to include such diverse elements as amount of materials used, difficulty to
manufacture, time consume, difference in type of labor used, and size of unit for determination of cost
allocation ratio.
WEIGHTED AVERAGE METHOD

5. If the net realizable value of the by-product of a joint production process is significant, how shall it be
accounted for?
The net realizable value of the by-product shall be recorded as deduction from the total joint
manufacturing cost thereby reducing the cost of the main products also known as replacement cost
method.
Insignificant
The net realizable value of the by-product shall be recorded as addition from the net sales of the
main product.
The net realizable value of the by-product shall be recorded as deduction from the cost of sales of
the main product.
The net realizable value of the by-product shall be recorded as other income.

When allocating By-product, we need to remember 2 things: SIGNIFICANT & INSIGNIFICANT


SIGNIFICANT – the method we use to allocate the by-product should be CAPITALIZABLE AT THE POINT
OF PRODUCTION
INSIGNIFICANT – we record the by-product value/cost AT THE POINT OF SALE METHOD (Net Realizable
Value Method)

You might also like