Costing MCQ Questions and Solutions with Explanations | Commerce

Approaches used to allocate joint costs include sales value at split off method, net realizable value method and constant gross margin percentage NRV method.

Net realizable value is added into separate costs to calculate final sales. Net realizable value (NRV) is the value for which an asset can be sold, minus the estimated costs of selling or discarding the asset. The NRV is commonly used in the estimation of the value of ending inventory.

Gross margin percentage in constant gross-margin percentage NRV method is based on total production.

Third step in constant gross margin percentage NRV Method to allocate joint cost is to compute allocated joint costs.

An expected future cost which diverges in unconventional course of action is known as relevant cost. Relevant cost is a managerial accounting term that describes avoidable costs that are incurred when making business decisions. The concept of relevant cost is used to eliminate unnecessary data that could complicate the decision-making process.

If net realizable value is $20000 and separable costs are $18000, then final sales will be $38,000.
Final Sales = Net Realizable value + Separable costs
= $20000 + $18000 = $38000.

Value of sales considers sales value at split off method is of entire production of accounting period. The split-off point is the point at which joint production stops and processing for separate products begins. The relative-sales-value method allocates costs based on the relative sales value of each resulting from a joint-production process.

Partial or completed units of manufactured goods, that do not meet customer specifications and get sold at reduced price or simply discarded, are called spoilage. Spoilage is waste or scrap that occurs during the manufacturing process.

In process and job costing system, normal spoilage cost is considered as inventoriable costs. Inventoriable costs are included in the cost of a product

Types of spoilage include normal spoilage and abnormal spoilage.
Normal spoilage is the kind of spoilage that happens during the production process that business owners can say is normal and acceptable.
Abnormal spoilage, on the other hand, is spoilage that is beyond the normal point wherein the level is unexpectedly high. It may be due to defective machinery, sub-standard quality of materials, and even incompetent operators.