In this lesson, Nick Palazzolo, CPA, breaks down the concepts of joint cost allocation at net realizable value and at the split-off point, essential for understanding product costing methods. He begins by defining net realizable value and then demonstrates how it is used to allocate joint costs between products. With the help of Armor Corp's financials, Nick works through a practical example, illustrating the allocation of $500,000 in joint costs to Set One and Set Two based on their respective net realizable values. He also explains what is meant by the split-off point, using relatable examples such as the transformation of wood into furniture, and contrasts the allocation methods using real-world scenarios. This lesson is packed with calculations and key insights to gain a clear understanding of these inventory valuation techniques.
Lesson: Joint Cost at NRV and Joint Cost at Split-Off
In this lesson, Nick Palazzolo, CPA, breaks down the concepts of joint cost allocation at net realizable value and at the split-off point, essential for understanding product costing methods. He begins by defining net realizable value and then demonstrates how it is used to allocate joint costs between products. With the help of Armor Corp's financials, Nick works through a practical example, illustrating the allocation of $500,000 in joint costs to Set One and Set Two based on their respective net realizable values. He also explains what is meant by the split-off point, using relatable examples such as the transformation of wood into furniture, and contrasts the allocation methods using real-world scenarios. This lesson is packed with calculations and key insights to gain a clear understanding of these inventory valuation techniques.
Updated: May 31, 2022 Create an account