Relative sales value method

The relative sales value method allocates joint costs to products in proportion to their sales revenue at the split-off point. It is preferred over the physical units method when products differ significantly in market value.

ByHoang TruongUpdated July 2, 2026

FrameworkJoint product costing

See it move

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A joint process incurs €80,000 of shared cost before split-off. Product A would sell for €60,000 at that point and Product B for €40,000, a combined €100,000. Allocating €80,000 in proportion to those figures gives Product A €48,000 (60%) and Product B €32,000 (40%) — the product with the higher market value absorbs the larger share of the shared cost.

Where it fits

SubjectCost AccountingAdvancedTopicJoint Products, By-Products & SpoilageAdvanced

The formula

LaTeX

JC_i = \frac{R_i}{\sum_{j} R_j} \times JC_{total}

Variables

$R_{i}$: sales revenue of product i if sold immediately at the split-off point (€)
$Σ R_{j}$: total sales revenue of all joint products at the split-off point (€)
$J C_{t} o t a l$: total joint cost incurred before the split-off point (€)

When products cannot be sold at split-off and require further processing before sale, the NRV method is used: substitute each product's NRV (eventual selling price less further processing costs) for its split-off revenue.

Check yourself

PracticeCORE

A meat processing plant separates raw beef into two joint products at the split-off point: prime cuts with a sales value of €90,000 and offal with a sales value of €10,000. Joint processing costs before split-off total €60,000. Using the relative sales value method, how much joint cost is allocated to offal?

Select an answer to check your understanding.