Chapter 16, Problem 16.26E

1. a.

To determine

Physical Measurement Method:

Physical measurement method is a process of joint cost allocation which apportions joint cost on the basis of number of units or physical volume.

Formula to allocate joint cost as per physical measure method:

$\text{Cost allocated to joint product}=\frac{\text{Quantity of product}}{\text{Total quantity of production}}\times \text{Total joint cost}$

Net Realizable Value (NRV) Method:

NRV method is a method of joint cost allocation which takes into consideration additional costs required to be incurred in the further processing of the products.

Formula to allocate joint cost as per NRV method:

$\text{Cost allocated to joint product}=\frac{\text{NRV of product}}{\text{Total NRV of production}}\times \text{Total joint cost}$

Where,

• $\text{NRV}=\text{Sales value}-\text{Cost of further process or sell}$

To compute: Allocation of joint cost as per physical measure method:

1. b.

To determine

To compute: Allocation of joint cost as per NRV method.

2.

To determine

To compute: Operating income as per Physical measure method and NRV method.

3.

To determine

To identify: Pros and cons of physical measure method and NRV method.

4.

To determine

To prepare: Letter to taxation authorities.