Answer (D) is correct . Joint products must be valued for external financial reporting purposes based on the full (absorption) cost of the product. Any common costs attributable to the joint production process must therefore be allocated on a systematic and rational basis.
Answer (A) is incorrect because The selling price of a by-product is determined by market forces outside the manufacturer’s control, not by the manufacturer’s cost structure.
Answer (B) is incorrect because The decision to discontinue a joint product is based on the incremental profit from that product, not the allocation of common costs.
Answer (C) is incorrect because A variance between budgeted and actual costs is scrutinized regardless of the method of allocating common costs.
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