A business which enters into a contract to purchase a product (or products)and will compensate the manufacturer under a cost reimbursement formula, should take an active part in the determination of how joint costs are allocated because
A)it is important in the understanding of the cause-and-effect relationship.
B)if the manufacturer successfully allocates a large portion of its costs to these products then it will be able to sell its other nonreimbursed products at lower prices.
C)the ASPE/IFRS requires the business to participate in the cost allocation process.
D)they are used in the calculation of the suppliers inventoriable costs.
E)sales discounts often depend on joint cost allocation amounts.

Question

Quizplus · Accepted Answer

The business should take an active part in the determination of joint cost allocation because if the manufacturer allocates a large portion of its costs to the reimbursed products, it can sell its other nonreimbursed products at lower prices, potentially affecting the business's competitive position.

A Business Which Enters into a Contract to Purchase a Product