RKH Corporation produces three joint products. During a recent accounting period, joint costs totalled $365 and RKH had no beginning inventories. Additional data appear below: M1 M2 M3
Volume (kilograms)150 50 300
Sales value at the split-off point $375 $155 $600
Sales value after further processing $450 $200 $900
Separable costs $50 $35 $100
Which of the following methods will result in the greatest joint cost allocation to M2?
A)Constant gross margin NRV
B)Net realizable value
C)Physical output
D)Sales value at split-off point

Question

Quizplus · Accepted Answer

The net realizable value method will result in the greatest joint cost allocation to M2. Under this method, joint costs are allocated based on the expected sales value of each product after further processing minus the separable costs. Since M2 has the highest net realizable value ($165), it will be allocated a higher proportion of the joint costs compared to M1 and M3.

RKH Corporation Produces Three Joint Products