# Manage Discussion Entry

Manage Discussion Entry

Greetings all,

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After reading the material from the text and doing a little outside work, there are three types of methods to allocate joint cost; they are physical measure output, relative sales value, and net realizable value. Physical measure output is used to determine the value from one product that can be broken down into many using its volume or weight. The text refers to mineral in this case, but also I read the making of petroleum fuels as well. This formula may work well with objects that have more than one properties that equal a specified weight (2017, Schneider).

Relative sales value takes the overall cost of the material and divides the material into what it will take to get back what the cost spent. An external example mentioned that a future company purchased land in the amount of \$800K. Lots were divided up to equal the total amount sold until the 800K was obtained. In this example, this does not include the amount to be made off the sale, only what it takes to break even on the amount spent(2020, Accounting Coach).

Last we have net realizable value or NRV. This method is the expectation that the company plans on making less unreimbursed costs. The example used in this method is a company is wanting to sell some outdated computers in the amount of \$10K. The company will not charge shipping nor the documents needed to write these off. Therefore the company will not make \$10K; it will be the \$10K less the expenses it takes to ship and file the additional paperwork.

Reference:

AccountingCoach. (2020). Retrieved 14 May 2020, from https://www.accountingcoach.com/terms/R/relative-sales-value-method-of-allocating-cost

Net Realizable Value (NRV) Definition. (2020). Retrieved 14 May 2020, from https://www.investopedia.com/terms/n/nrv.asp

Randi Slaughter

ThursdayMay 14 at 2:25pm

Manage Discussion Entry

According to the text, there are three common joint cost allocation methods (Schneider, 2017).  Each method is based on outputs.  With that in mind, we see that there is the physical measure method.  In this method, cost is allocated by the weight, volume, or some sort of measurement of the product.  The physical measure method does not related revenue to expenses.  The joint costs are then allocated in proportion to the product’s output measure.  To find the joint cost allocation, you would multiply the ratio of the product’s total output and multiply it to the ratio of the total overhead costs.

A second method is known as relative sales value. This method allocates joint costs in proportion to the joint products total sales at the spit-off point (Schneider, 2017).  The split-off point being when the costs of separate products can be separately identified.  The formula would be sales value/total sales value multiplied by total joint costs.  Finally, the net realizable value method uses approximations of sales values.  This formula would be net realizable value/total net realizable value multiplied by joint costs.  I would choose net realizable value as the method of allocating joint costs.  This method does a better job at matching the final sales value with costs incurred during production.

Lauren Lombardo

ThursdayMay 14 at 1:27pm

Manage Discussion Entry

Absorption costing and variable costing are two different methods of maintaining records in cost accounting. Absorption costing includes indirect expenses like overhead and direct, while variable costing excludes these.  Although not allowed in GAAP OR IFRS (for lack of reporting fixed costs), variable costing is used more with managers because it is easier to see sales profit and output.. Variable costs are directly related with quantity produced. Variable costing uses material and labor cost. If you can increase production, then fixed cost per unit will come down and usually remains constant unless technology changes this. There are pros including the ability to be able to see  the number of units needed to be sold to begin earning a profit  using this method. These reasons alone would help anyone realize why they should be for instead of against it. Another reason would be that this method helps managers estimate a break even quantity. The decisions made with this method are endless. To make or buy a product, close down a department or product that is not profiting and the list goes on.