Answer
Allocating joint costs to individual products or services is necessary for financial reporting, cost reimbursement under contracts, and insurance settlement computations. It ensures accurate financial statements, fair compensation, and precise claims for damages.
Work Step by Step
1. Computation of Inventoriable Costs and Cost of Goods Sold: Allocating joint costs is necessary for calculating inventoriable costs and cost of goods sold for both financial accounting purposes and internal reporting, ensuring accurate financial statements and cost tracking.
2. Cost Reimbursement under Contracts: In situations where only a portion of a company's products or services is sold or delivered under cost-plus contracts, allocating joint costs helps determine the appropriate cost for reimbursement, promoting fair compensation.
3. Insurance Settlement Computations: When making damage claims based on cost information of joint products or byproducts, proper allocation of joint costs is crucial for insurance settlement computations, ensuring that claims accurately reflect the extent of damage or loss.
These allocations serve various purposes, including financial reporting, contract compliance, insurance settlements, and more.
