Allocating joint costs to products using a value basis method is based on their relative:
A) Direct costs.
B) Variable costs.
C) Total costs.
D) Sales values.
E) Gross margins.

Question

Quizplus · Accepted Answer

Allocating joint costs based on sales values is a commonly used method as it considers the relative value of the products in the market. The sales value method allocates the joint costs in proportion to the sales value of each product. This method is appropriate when the products have different sales prices and reflects the relative value of the products to the market. Direct costs, variable costs, total costs, and gross margins may not accurately reflect the value of the products in the market.

Allocating Joint Costs to Products Using a Value Basis Method