Video: Joint Costing Allocation Methods

In this lesson, Nick Palazzolo, CPA, delves into the often-intimidating world of joint cost allocation methods with an approachable, simplified explanation designed to demystify the process. He aims to make the material accessible by focusing on practical needs without overwhelming with complex theories. Nick breaks down how overhead costs such as utilities and admin salaries are apportioned to different product lines, services, or departments. He introduces several allocation methods, including activity-based costing, joint cost at net realizable value, split off point, and volume-based production, explaining their relevance and application. Furthermore, Nick clarifies operation costing by combining job order and process costing, as well as backflush costing, emphasizing memorization and conceptual understanding over mathematical application for these particular methods.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Joint costing allocation methods. Oh boy, oh boy. You knew it was coming and now we're here. People get intimidated by this. I got intimidated by this, but now I don't cause well for your benefit.

I spent so much time making sure I only included what was needed, right and simplifying it and not putting these lofty explanations that go over the top again. All this is you're just allocating that lump sum of overhead to our different product lines or services or departments. So many questions are going to have you allocate joint costs using various methods. Here are our methods.

These joint costs oftentimes will be overhead costs, as in the overhead from our cost of goods manufactured formula. Overhead costs are usually factory costs shared among all facilities and product lines such as utilities, admin salaries, insurance, etc. While direct materials and direct labor costs are easy to assign to a certain product line. Because as we make TVs, plastic and glass and all that is pretty easy to assign to those TVs because it was used up when we made them. Or hey, I directly worked on these TVs, let's assign those salaries and hourly wages to our TVs. Overhead costs are shared by the overall company.

A few methods used to allocate these overhead costs are activity based costing, joint cost at net realizable value, joint cost at split off point, and volume based production. We will go over all of these, don't worry about them too much right now. Just get a nice overview of what we will see.

Volume based production determines how to allocate costs once the cost drivers have already been established, and decides costs based on the volume produced of a good or service. Nothing too crazy. Now, allocating production costs, let's talk

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