ECONOMICS

Detailed explanation-1: -Market value is also a relatively straightforward method of common cost apportionment when the joint products can be sold at the split-off point. The output of each product is multiplied by their selling price at the split-off point to provide the respective weighting to be applied to the common costs.

Detailed explanation-2: -Costs incurred by a company that affects more than one product and that can’t be allocated separately to each product are joint costs. Up to the point of split off, this cost is borne. A separate set of costs is incurred at the split-off point, attributed to the different products in turn.

Detailed explanation-3: -There is a separation point called as a split-off point, from where the products are separated and identified. At this stage, either the products are sold directly or go for further processing, to turn out as finished product. The amount incurred up to the split-off point is termed as joint cost.

Detailed explanation-4: -The sales value method allocates joint costs based on the relative sales value of each product at the split-off point. This method also ensures that joint costs allocated to each product will not exceed sales revenue for each product (unless total joint costs are higher than total revenue).