To be solved by DKetan. Describe the three methods used to allocate joint costs. What are the advantages/disadvantages of each allocation method? Which method would you recommend? Why? Support

To be solved by DKetan.

Describe the three methods used to allocate joint costs. What are the advantages/disadvantages of each allocation method? Which method would you recommend? Why? Support your position with evidence from the text or external sources. Post should be 200-250 words.

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CHAPTER 8
Section 8.1 Joint Cost Allocation
Chapter Outline
8.1 Joint Cost Allocation
Physical Measures of Output
Relative Sales Value
Net Realizable Value
Byproducts and Scrap
8.2 Variable Costing
Characteristics of Variable Costing
Comparing Variable Costing and Absorption Costing
Reconciliation of Variable and Absorption Costing
Arguments for Either Costing Method
Effects of New Manufacturing Environments
Should We Hide the Joint Cost Assigned to Hides?
Dianne Leader, president of Toco Hills Meatpackers, has just received the first quarter
financial statements from her vice-president and controller, Bruce Berger. She imme-
diately sees that while profits from the various meat products are up from the previous
quarter, the profits from hides are down considerably. She calls Bruce and asks, “Can
you tell me why costs for the hides appear to be so high?” Bruce responds, “No, but
I’ll look into it and get an answer for you by tomorrow at this time.”
Like clockwork, Bruce knocks on the president’s door, enters, and hands Dianne a one-
page report. “Ah, the joint cost allocation to hides seems to be out of line,” Dianne
says with a frown. “You know,” Dianne tells Bruce, “if I had to bet on it, I’d wager
some big bucks that you changed the way joint costs are assigned to our products.”
Indeed, the way joint costs are assigned to joint products that are produced by a com-
pany can greatly affect the reported profits from the various products. So, how should
these costs be assigned?
8.1
Joint Cost Allocation
P
roduction processes can sometimes spawn multiple products from common inputs and
processing. These are called
joint products
. An example is a refinery where crude oil
is processed into joint products of gasoline, heating oil, and motor oil. The costs of mate-
rials and processing up until individual products are identifiable are referred to as
joint
costs
. This point at which the individual products become identifiable is known as the
split-off point
. Until this point, the common input is a single product. The joint costs are
allocated to the joint products for some product costing purposes such as external financial
statement presentation and product pricing. In previous chapters, we have allocated costs
using cost drivers that measure inputs such as labor hours or machine hours. However,
input measures are not feasible for allocating joint costs since the joint products are not

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