chapter 16 Flashcards
(41 cards)
What are saleable products?
Products that can be sold for profit or processed more to be sold.
What is scrap?
Low-value byproducts, often sold cheaply or thrown away.
What is toxic waste?
Harmful products that need special disposal, not saleable.
How do you allocate joint costs using the Physical Measure Method?
Based on physical attributes (e.g., weight or volume).
Why is the Physical Measure Method less useful?
It doesn’t relate to how much money the products will actually make.
How do you allocate joint costs using the Sales Value at Splitoff Method?
Based on how much each product can be sold for when split off.
Why is the Sales Value at Splitoff Method better?
It reflects each product’s revenue-making potential.
What is the Net Realizable Value (NRV) Method used for?
When there’s no sales value at splitoff, allocate costs based on expected final sales minus separable costs.
How does the Constant Gross Margin Percentage Method work?
Allocates joint costs to keep the same profit margin across products.
What is a sell or process further decision?
choice to either sell a product now or process it more and sell later.
Why are joint costs irrelevant in the sell or process further decision?
Joint costs are sunk costs and can’t be recovered, so they don’t affect the decision
What should you focus on when making a sell or process further decision?
Incremental costs (extra costs to process further) and potential revenue.
How do joint costs affect profitability reports?
Allocating joint costs affects how profitable each product looks, influencing decisions.
Why is the market-based method often more accurate?
It allocates costs based on real sales values, showing true revenue potential.
What’s a downside of the market-based method?
It can be hard to use if market prices are unstable or unavailable.
When would the physical measure method be used?
For simplicity or when no market price data is available, but it may not reflect real value.
What is the main goal of joint cost allocation?
To fairly assign costs to products that share production costs.
What is the Production Byproduct Method?
Recognizes byproducts as they’re made and records their value at production.
When is revenue recognized in the Production Byproduct Method?
Revenue is recorded when the byproduct is sold.
What is the Sale Byproduct Method?
Byproducts are recognized only when they are sold, not at production.
How does the Sale Byproduct Method treat costs?
How does the Sale Byproduct Method treat costs?
What is the key difference between scrap and saleable products?
Scrap has little to no value, while saleable products can be sold for profit
What are joint costs?
Shared costs incurred in the production of multiple products at the same time.
What is the key consideration when choosing a joint cost allocation method?
It should match the company’s needs for simplicity, accuracy, and relevance.
