Service Department Cost Allocation - Anna Lee

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Allocation of Joint Costs2 Methods of Allocation:Net realizable value methodPhysical quantities method• Net realizable value method:Joint cost allocation based on the proportionalvalues of the products at the split-off point.• Net realizable value (NRV):Sales value of each product at the split-off pointminus disposable cost.• Estimated net realizable value:If the sales value at split-off is not available, use theestimated NRV method. That is sales price of a final productminus additional processing costs necessary to preparea product for sale (disposable cost).11 - 22
Net Realizable Value MethodFinal sales valueLess: Additional processing costsNet realizable value at split-off pointProportionate share:= $300,000 ÷ $750,000= $450,000 ÷ $750,000Allocated joint costs:= $270,000 × 40%= $270,000 × 60%ExampleCarlyle Coal CompanyJoint Allocation – NRV Method(no additional processing costs)Hi-Grade Lo-Grade Total$300,000-0-$300,00040%$108,000$450,000-0-$450,00060%$162,000$750,000-0-$750,00011 - 23
Page 2: LO1Service Department Cost Allocati
Page 5 and 6: Cost Allocation: Direct Method• D
Page 7 and 8: Cost Allocation: Step Method• The
Page 9 and 10: LO3Cost Allocation: Step MethodServ
Page 11 and 12: Cost Allocation: Reciprocal Method
Page 13 and 14: LO4Cost Allocation: Reciprocal Meth
Page 19 and 20: LO5The Reciprocal Methodand Decisio
Page 21: Allocation of Joint CostsJoint cost
Page 25 and 26: Estimating NRV• When no sales val
Page 27 and 28: Physical Quantities Method• Joint
Page 29 and 30: By-products• By-products are outp
Page 31 and 32: Carlyle Coal CompanyFor the Month o
Page 33 and 34: Sell or Process Further• Suppose

Service Department Cost Allocation - Anna Lee

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