Methods Of Apportioning Joint Costs To Joint Products

Following methods are used for apportioning joint costs to joint products:

1. Average Unit Cost Method

This method is highly effective where the output of individual products can be expressed in some common unit. Under average unit cost method, each unit of output shares a proportionate amount of joint cost. This method is simple since the joint cost is separated into an average joint cost per unit of output realized during the relevant period.

Average unit joint cost= Total joint cost/Number of units of joint product produced.

2. Physical Unit Method

Proportion of raw material contain in each joint product is the basis for the allocation of joint costs under physical unit method. Physical coefficient of raw material contained in the joint products is taken as proportion to distribute joint cost.

3.Survey Method

The weight of an individual product is determined in terms of result tabulated out of survey in the survey method. The extensive survey is made to identify the factors like selling price, volume of sales, marketing activities, technical value of production ratio of intake raw materials etc.

4. Contribution Margin Method

Marginal contribution of joint products forms ground with which marginal cost is distributed in contribution margin method. Contribution margin is the margin of sales revenue available after separation of variable cost. Margin of sales revenue or contribution margin so derived is used for the absorption of fixed cost.

5. Market Value Method

Market value of a product is the focal point for the segregation of pre-separation costs into joint products. Market value method is valid on the ground that cost has a bearing on the fixation of selling price of joint products. Thus selling price or market value is the reference value to transform joint costs to joint products.