The article presents a response of the author on comments made by scholar Joseph G. Louderback on his article "Another Approach to Allocating Joint Costs." The additional examples provided by "Another Approach to Allocating Joint Costs: A Comment," by Louderback do not demonstrate the existence of a conceptual error in the joint cost allocation procedure which I have advocated. Rather, examples demonstrate the robustness of the procedure. The apparent weakness in the allocation procedure as demonstrated in "A Comment" results from an error in the specification of the next best alternative means to obtain a service. Consider the first example, a firm has the opportunity to purchase a lot consisting of 400 units of A and 200 units of B for $1,500. The units of A are in saleable condition, but the B's would require an additional cost of $1,200 to restore them to saleable condition. The firm normally purchases units of A for $6 each and units of B for $4 each. The allocation procedure which I proposed requires the comparison of the joint purchase cost' with the next best alternative. The firm has the option to purchase 200 B's for $800. However, the next best alternative to purchase 400 units of A is 51.500. If the opportunity at hand were not available, the best alternative would be $2,400; however, goods are available for $1,500.

Several researchers (e.g., Boatsman and Robertson [1974], Dyer [1975], Frishkoff [1970], Pattillo [1975], Pattillo and Siebel [1974], and Woolsey [1973]) have attempted to explain how auditors make materiality judgments. However, these research efforts have not provided satisfactory explanations of the materiality judgment. In this paper, we (1) suggest a different view of the materiality concept, (2) suggest a methodology for examining how materiality decisions are reached, and (3) demonstrate the application of this approach to a specific materiality decision. Much of the research on materiality judgments is focused on discovering the amount of consistency which exists among professionals in making materiality judgments. The findings of this research have demonstrated that, in fact, no consensus exists in the profession. Bernstein [1967] summarizes much of the literature with the observation: [the decision function] seems to be . . . a highly personal device, since the output [decisions] can vary significantly on what are the same or similar sets of facts. Four possible sources of differences may exist among auditors' decision models which would explain the lack of consensus in materiality judgments. These are: (1) the variables deemed relevant to the decision; (2) the ma-