Constant gross margin percentage NRV method

Constant gross margin percentage NRV method assigns joint costs so every joint product earns the same gross margin percentage, working backwards from final selling prices by deducting separable costs and then the residual joint cost share.

ByHoang TruongUpdated July 3, 2026

FrameworkJoint product costing

See it move

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The method first computes one overall gross margin percentage for the whole batch: combined final revenue, less all joint and separable costs, divided by revenue. That single percentage is then imposed on every product — revenue times (1 − target margin) gives implied gross profit, less that product's separable costs, leaving the joint cost allocated, which can turn negative if separable costs alone exceed the allowed margin.

Where it fits

SubjectCost AccountingAdvancedTopicJoint Products, By-Products & SpoilageAdvanced

The formula

LaTeX

GM = \dfrac{\sum R_i - JC - \sum SC_i}{\sum R_i}

Variables

$GM$: Overall gross margin ratio (decimal) for the combined batch of joint products (decimal)
$R_{i}$: Final sales revenue of joint product i after all further processing (€)
$J C$: Total joint costs to be allocated across all products (€)
$S C_{i}$: Separable processing costs attributable to product i after the split-off point (€)

Computed once for the combined batch; this single ratio is then imposed on every individual product in the second step.

LaTeX

JC_i = R_i \times (1 - GM) - SC_i

Variables

$J C_{i}$: Joint cost share allocated to product i (€)
$R_{i}$: Final sales revenue of product i (€)
$GM$: Overall gross margin ratio calculated in step 1 (decimal)
$S C_{i}$: Separable costs attributable to product i after the split-off point (€)

Can produce a negative joint cost allocation for a product whose separable costs alone consume more than the target margin allows.