Managerial Accounting Ch 5

Direct Method

Easy and Least Accurate

For products not processed beyond the split-off point, the net realizable value is computed as follows:

Net Realizable Value = Selling Price at Split-Off x Quantity

______________________________ is the estimated selling price of a product less any costs necessary to further process the product beyond the split-off point.

Net realizable value

None of the four methods is more accurate than any other method because they all allocate costs that are, by definition, inseparable.

Thus, a subjective determination must be made as to the most appropriate method to use.

Support departments are sometimes called ____________________________ because they provide services to other departments. Support departments are normally accounted for as a cost or responsibility center. All direct costs of the support department are accumulated in the center.

service departments

A _________________________ provides a necessary service to produce a product, but is not directly involved in the production process. For example, Janitorial and Maintenance departments are necessary for production, but are not directly involved in production.

support department

If management wants joint cost allocations to reflect the difficulty with which products are made, the ________________________________ is most appropriate.

weighted average method

The ___________________________________ allocates joint costs based on weight factors for each product.

weighted average method

The net realizable value method allocates joint costs using each product's estimated net realizable value after it is fully processed.

Products that have a higher net realizable value are allocated more joint costs. Some products can be sold at the split-off point or be processed further and sold for a higher price.

The ____________________________________ allocates joint costs using a physical measure of the products at the split-off point, such as pounds, gallons, or inches.

physical units method

Because support department costs are only indirectly related to production, they are difficult to apply to products.

However, it is difficult, if not impossible, to find an appropriate cost driver for applying these costs to a product.

To use the market value at split-off method, an estimate of the market value at split-off must be available.

If a product is sold at the split-off point, its actual sales price is used.

Sequential Method

Moderately Difficult and Moderately Accurate

Reciprocal Services Method

Most Difficult and Most Accurate

For products processed beyond the split-off point, net realizable value is computed as follows:

Net Realizable Value = (Final Selling Price x Quantity) - Additional Processing Costs

The weight factors are multiplied by physical units to arrive at weighted physical units. These weighted physical units are then used to allocate the joint costs to the products.

The weight factors can be based on a variety of factors, such as the type of labor needed for each product, the difficulty of producing each product, and the estimated wear and tear on machines caused by each product.

Some companies consider support department costs to be _____________________________ and do not apply them to products.

facility-level costs

The ____________________________________________ allocates joint costs using each product's total market value at the split-off point. Products that have a higher market value are allocated more joint costs.

market value at split-off method

If management wants joint cost allocations to reflect the final market value of products, the ____________________________________ is ideal.

net realizable value method

The __________________________ is the easiest to use and allocates more costs to skin cream than to shampoo and soap because more pounds of skin cream were produced in the joint process.

physical units method