Unitron Corporation Teaching Commentary - 3082 Words

OVERVIEW This is an excellent short case to introduce the managerial accounting issues related to the joint cost problem. Classic microeconomics argues unequivocally that attempts to assign cost to individual products in a joint set constitute a complete waste of time--just maximize the total revenue over the batch. Like the comparable adage to price so that marginal cost equals marginal revenue, the economists advice about joint costing is certainly accurate, given the assumptions, but not particularly useful in practice. Most managerial accountants, including this author, believe that there are important managerial issues involved in accounting for joint cost in real companies. This case covers those issues for a real company.†¦show more content†¦The case says that no production costs are assigned to the by-product. This is one alternative for dealing with by-products. We also assume here that any revenue from by-product sales is credited to miscellaneous income, rather than being offset against the $200,000 manufacturing cost. Otherwise, given the uncertainly about by-product revenues in the case, even the average cost calculation becomes very complex. If the by-product units (400s) are considered a joint product, the average cost is $.40 per unit ($200,000 à · 500,000 units). The RSV method has a number of twists that can result in many different unit costs for the five products. For inventory costing purposes, any systematic cost allocation system will do. The basic idea of the relative sales value scheme is that all sales should show gross margin percent equal to the average gross margin percent across the full joint product set. This average is 19% [(246 - 200) à · 246)]. This does imply 5 different costs for the 5 different products, based on the 5 different selling prices. As long as no product switching occurs, the basic idea is easily preserved. Note here that the relevant designation for a product is the sales designation. Anything sold as a 401 will carry 401 cost. Here are the resulting unit cost numbers: Unit Costs 401 402 403 404 405 Physical