Revenue methods of by-product cost allocation are justified on financial accounting concepts of:
A)Revenue realization and materiality.
B)Revenue realization, materiality, and cost-benefit.
C)Materiality and cost-benefit.
D)Materiality and stable dollar.
E)Cost-benefit and stable dollar.

Question

Quizplus · Accepted Answer

By-product cost allocation methods involve allocating costs to by-products based on their relative sales value. This method is justified based on the financial accounting concepts of revenue realization, materiality and cost-benefit. Revenue realization requires that revenue be recognized in the accounting period in which it is earned, and this method ensures that the revenue earned from by-products is properly recognized. Materiality requires that financial statements disclose all significant information, and this method ensures that the costs associated with by-products are properly disclosed. Cost-benefit requires that the costs of implementing a system be weighed against the benefits it provides, and this method provides a cost-effective way to allocate costs to by-products.

Revenue Methods of By-Product Cost Allocation Are Justified on Financial