Net Realizable Value Method

 Allocates joint costs to joint products on the

basis of relative NRV of total production of the
joint products
 NRV = Final Sales Value – Separable Costs

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NRV Example
Cream Skim-milk Total
Final Sales Value of Production
Cream: 25 gals@ $50/gal
$52 $ 1,300
Skim-milk: 75 gals@ $10/gal
$10.66 $ 800
Total $ 2,100
Less: Separable Costs 900 200 1,100
NRV 400 600 1,000
NRV Weighting:
Product NRV ÷ Total NRV 40% 60%
Joint Costs 500 500
Joint Costs Allocated
NRV Weighting X Joint Costs $ 200 $ 300

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Constant Gross Margin NRV Method

 Allocates joint costs to joint products in a way

that the overall gross-margin percentage is
identical for the individual products
 Joint Costs are calculated as a residual
amount

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Constant Gross Margin NRV Method
Example
Cream Skim-milk Total
Final Sales Value of Production
$52
Cream: 25 gals@ $50/gal $ 1,300
Skim-milk: 75 gals@ $10/gal $ 800
$10.66
Total $ 2,100
Less: Separable Costs 1,100
NRV 1,000
Joint Costs 500
Gross Profit $ 500
Gross Profit % of Sales Value (rounded) 23.8%
Cream Skim-milk Total
Sales Values $ 1,300 $ 800 $ 2,100
Less Gross Margin @ 23.8%(rounded) 310 190 500
Total Product Costs 990 610 1600
Less Separable Costs 900 200 1100
Joint Costs Allocated $ 90 $ 410 $ 500

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Method Selection
 If selling price at splitoff is available, use the Sales
Value at Splitoff Method
 If selling price at splitoff is not available, use the NRV
Method
 If simplicity is the primary consideration, Physical-
Measures Method or the Constant Gross-Margin
Method could be used
 Despite this, some firms choose not to allocate joint
costs at all

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