Financial reporting standards require that joint costs:
A) Be treated as a period cost and expensed immediately.
B) Be assigned to the product produced in the largest quantity.
C) Be assigned to the product with the highest sales value.
D) Be allocated to the two or more joint products.

Question

Quizplus · Accepted Answer

Financial reporting standards require that joint costs be allocated to the two or more joint products based on their relative sales value or production quantity. This is known as the "net realizable value method." Option A is incorrect because joint costs are not expensed immediately, since they are allocated to joint products. Option B is incorrect because joint costs should be allocated to all joint products, not just the one produced in the largest quantity. Option C is incorrect because joint costs should be allocated based on relative sales value, not just the product with the highest sales value.

Financial Reporting Standards Require That Joint Costs