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ACC445 P2T2 DB 1-23-07 - ACC445-0701A-01 Cost Accounting...

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ACC445-0701A-01 Cost Accounting Cara Cole/Estes Phase 2, Task 2 - Discussion Board Due: 1/23/07 By selling their waste as a byproduct, SSOG is generating another revenue stream and reducing waste removal costs. Because the byproduct will have a low sales value, it is important that any additional production costs are not higher than the reduction in waste removal costs. By adding a byproduct SSOG will also be able to allocate the joint costs, thereby increasing the contribution margin of their main product. The costs can be allocated 2 ways. The simplest way is to allocate by sales value of the total production for the period. For example, if a total of $10,000 of product was produced and $7,500 was orange juice and $2,500 was room-deodorant spray, then the costs would be allocated 75% to 25%. Another way to allocate costs is by determining the Net Realizable Value (NRV). This method is usually used when the sale price at split-off is not known due to additional processing after the split-off point in production. In this method, the separate costs are subtracted from the final sales price in order to determine
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