The primary purpose for allocating to various products the joint cost of a processing center is to
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See Also: Joint Costs DefinitionIn accounting, a joint cost is a cost incurred in a joint process. Joint costs may include direct material, direct labor, and overhead costs incurred during a joint production process. A joint process is a production process in which one input yields multiple outputs. It is a process in which seeking to create one type of output product automatically also creates other types of output product. Joint Process ExamplesJoint processes are production processes in which the creation of one product also creates other products. It is a process in which one input yields multiple outputs. Joint production processes are common in the agriculture industry, the food manufacturing industry, and the chemical industry. Joint Cost AllocationAllocate joint costs to the primary output products of the joint process, not the incidental byproducts or scrap. Allocate them using a physical measure or a
monetary measure.
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JOIN OUR NEXT SERIES Financial Leadership Workshop THE ART OF THE CFO® Financial Leadership Workshop What is the primary purpose of cost allocation?Cost allocation provides the management with important data about cost utilization that they can use in making decisions. It shows the cost objects that take up most of the costs and helps determine if the departments or products are profitable enough to justify the costs allocated.
What is the main purpose of accounting of joint product and by product?Joint costing or by-product costing are used when a business has a production process from which final products are split off during a later stage of production. The point at which the business can determine the final product is called the split-off point.
Why do we allocate joint costs?Manufacturing companies must allocate joint costs to determine the inventory value of the products that result from the joint process.
What is the purpose of an allocation method?How to Allocate Costs. Various cost allocation methods are used to allocate factory overhead costs to units of production. Allocations are performed in order to create financial statements that are in compliance with the applicable accounting framework.
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