Answer
The Sales Value at Splitoff Method allocates joint costs based on the total sales value at the splitoff point of joint products. In contrast, the Net Realizable Value (NRV) Method allocates joint costs based on the net realizable value, which subtracts separable production and marketing costs from the final sales value of the joint products.
Work Step by Step
The Sales Value at Splitoff Method and the Net Realizable Value (NRV) Method both use market selling-price data for allocating joint costs. However, they differ in the sales-price data they use and the basis for allocation:
1. Sales Value at Splitoff Method: This method allocates joint costs to joint products based on the relative total sales value at the splitoff point. It considers the total sales value of the entire production of these products during the accounting period without subtracting any further costs.
2. Net Realizable Value (NRV) Method: In contrast, the NRV method allocates joint costs to joint products based on the relative net realizable value. This value is calculated as the final sales value minus the separable costs of production and marketing. It takes into account the actual revenue minus the costs required to prepare the product for sale.
In a nutshell, while both methods rely on market selling-price data, the key distinction lies in the basis for allocation. The Sales Value at Splitoff Method uses total sales value at the splitoff point, while the NRV Method considers the net realizable value, which deducts additional costs to arrive at the final sales value.
