Joint cost is the cost incurred during a manufacturing process. When a manufacturer produces different products with same raw material inputs, then the cost consumed during this whole production process is called joint cost. For example, Dairy firms use milk as the raw material an produces curd, cream, ghee etc.
Allocation cost for a joint product is determined by following different methods.
Allocation cost by relative sales value method:
Allocated cost to a joint product= Sales value of the product/ Sales value of the total production x Total Joint cost
Allocation cost by physical measurement method:
Allocated cost to a joint product= Quantity of the product/ Quantity of the total production x Total Joint cost