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

Question

Quizplus · Accepted Answer

Allocating joint costs based on the sales values of the products best reflects their relative values in the marketplace. The sales value method allocates joint costs in proportion to the final sales value of each product. This method considers the amount customers are willing to pay for each product, which reflects their relative importance and value to the market. Therefore, the sales value method provides a fair allocation of joint costs, reflecting the true market value of each product.

Allocating Joint Costs to Products Using a Value Basis Method