Which of the following methods of cost allocation based on market value is used when there is no ready market price available for the individual products at the split-off point?
A)The physical units method
B)The net realizable value method
C)The sales-value-at-split-off method
D)The constant gross margin percentage method

Question

Quizplus · Accepted Answer

The net realizable value method is used when no ready market price is available for individual products at the split-off point. This method calculates the value of each product based on its eventual selling price minus further processing costs. This method is a more accurate reflection of the actual value of each product than the physical units method and is considered more reliable than the sales-value-at-split-off method when individual products are difficult to value. The constant gross margin percentage method is not based on market value and is therefore not the best choice for this scenario.

Which of the Following Methods of Cost Allocation Based on Market