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  Apportionment of Joint Costs to Products

Methods of Apportionment of Joint Costs to Joint Products

The following methods are employed for apportionment:

I. Physical Quantity Method:

Within this method, cost apportionment is completed in proportion to the volume of production. These physical measures might be units, kilos, tones, gallons, pounds, liters etc. The following instance will explain the point.

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II. Average Unit Cost Method:

Within this method, the joint cost is apportioned to the joint products through calculating the average unit cost of the product units. The average unit cost is calculated through dividing the total manufacturing cost from the total number of units produced of all products. This technique is helpful where all the products produced are consistent with each other in all the respects. This technique will not be helpful if the production units are not identical with each other.

III. Weighted Average Method:

Within this method, weights are allotted to each unit based on size of the units, variation in type of labor employed, market share, material consumption, efforts of labor needed and so on. The joint cost is apportioned on the basis of the weights assigned to each product. This method is very much helpful if the weights assigned are on objective basis. If subjective element creeps in, the method might not provide accurate results.

IV. Selling Price Method:

Within this method, the joint cost is apportioned on the source of sales value at the split off point. The reason is that a product should bear the share of the joint cost as per to its sale price. If sales price is greater than that of the other products, additional share of joint cost should be charged to that product and if it is relatively less than of other products, less share of joint cost should be charged to the same. Even though logically this technique seems to be sound, actually, charging greater share of joint cost to the product along with higher sales value might not be justified because of the fact that lesser efforts are needed for manufacturing of the same.

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