Bhimani, Horngren,
Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
6.6 Limitations of the physical measure method of
joint-cost allocation include a The physical weights used for allocating joint costs may have no relationship to the revenue-producing power of the individual products.
b The joint products may not have a common physical denominator – for example, one maybe a liquid while another a solid with no readily available conversion factor.
6.7 No joint-cost-allocation method is supported by the cause-and-effect criterion. The cause-and-effect relationship exists only at the joint-process level.
Joint costs,
by definition, cannot be the subject of cause-and-effect analysis at the individual product level.
6.8 No. Any method used to allocate joint costs to individual products that is applicable to the problem of joint product-cost allocation should not be used for management decisions regarding whether a product should be sold or processed further. When a product is an inherent
result of a joint process, the decision to process further should not be influenced by either the size of the total joint costs or the portion of the joint costs assigned to particular products. Joint costs are irrelevant for these decisions. The only relevant items for these decisions are the incremental revenue and the incremental costs beyond the split-off point.
6.9 No. The only relevant items are incremental revenues and incremental costs when making decisions about selling products at the split-off point or processing them further. Separable costs are not always identical to incremental costs. Separable costs are costs incurred beyond the split-off point that are assignable to individual products. Some separable costs may not be incremental costs in a specific setting (e.g. allocated manufacturing overhead that includes depreciation.
6.10 Use of a market-based method either sales value
at split-off or estimated net realisable value (NRV)
for all products would eliminate the need fora joint-product/by-product distinction. It would also mean consistently recognising the costs of all products at the point of production.
Share with your friends: 
