Allocating

Describe the three methods used to allocate joint costs

Three methods of joint cost allocation are the physical measure of output, relative sales value, and net realizable value. All these methods are effective and used for different purposes. For Instance, the physical measure of the output is useful when measuring the quantity. It contains some prominent quantifiable characteristics. The relative sales value is a good method that facilitates the tracking of different products. It relates cost to each other. The new realizable value depicts the cost of a product which is yet to complete the production house. It highlights all expenses that are incurred throughout (Hansen, Mowen, & Guan, 2007).

What are the advantages/disadvantages of each allocation method?

The physical measure of output is quite easy and simple to use. It is easy to adapt. However, the main disadvantage is that it indicates the same criteria. All quantities must be the same. The advantage of relative sales value is its reliability. On the other hand, the disadvantage is its limitation when reflecting the value of the individual product. The advantage of the net realizable value is the simple adaptation. However, it looks difficult to out a sales price before the product completion (Hansen, Mowen, & Guan, 2007).

Which method would you recommend? Why?

I would like to recommend the relative sales value because it is simple, adaptable, and reliable.  In an organization, this method can be adapted to conduct an analysis of different products and compare them regarding the cost.  In the competitive market, the management can navigate some spikes in needs and demands, and accordingly, allocate the cost. This method is a good source for the management of the company to derive insights into these spikes and make appropriate decisions.

Reference

Hansen, D., Mowen, M., & Guan, L. (2007). Cost Management: Accounting and Control. Cengage Learning.