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    Unitron Corporation Case Study Analysis

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    himanshusanga
    Unitron Corporation is facing a joint cost dilemma in allocating costs incurred during the joint production of multiple products like petrol, diesel, kerosene, and gasoline from crude oil. There are two main methods for allocating joint costs - the engineering method which uses physical attributes and the non-engineering method which uses relative sales values. For example, in allocating joint costs from oil refining, the non-engineering method would assign costs to each product based on its sales value proportion out of total sales.

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    Unitron Corporation Case Study Analysis

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    himanshusanga
    522 views2 pages
    Unitron Corporation is facing a joint cost dilemma in allocating costs incurred during the joint production of multiple products like petrol, diesel, kerosene, and gasoline from crude oil. There are two main methods for allocating joint costs - the engineering method which uses physical attributes and the non-engineering method which uses relative sales values. For example, in allocating joint costs from oil refining, the non-engineering method would assign costs to each product based on its sales value proportion out of total sales.

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    Unitron Corporation is facing a joint cost dilemma in allocating costs incurred during the joint production of multiple products like petrol, diesel, kerosene, and gasoline from crude oil. There are two main methods for allocating joint costs - the engineering method which uses physical attributes and the non-engineering method which uses relative sales values. For example, in allocating joint costs from oil refining, the non-engineering method would assign costs to each product based on its sales value proportion out of total sales.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    522 views2 pages

    Unitron Corporation Case Study Analysis

    Uploaded by

    himanshusanga
    Unitron Corporation is facing a joint cost dilemma in allocating costs incurred during the joint production of multiple products like petrol, diesel, kerosene, and gasoline from crude oil. There are two main methods for allocating joint costs - the engineering method which uses physical attributes and the non-engineering method which uses relative sales values. For example, in allocating joint costs from oil refining, the non-engineering method would assign costs to each product based on its sales value proportion out of total sales.

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    UNITRON CORPORATION CASE STUDY ANALYSIS

    Case Problem: “Joint Cost Dilemma”

    Joint Cost: Joint Costs are the costs incurred while producing two or more products and where
    the allocation of costs to the produced products is not possible. It is the total operation costs
    incurred before split-off point (stage of the common production process where joint products are
    separated).
    The total production costs of multiple products comprise of both joint costs and individual product
    costs. Though individual product costs are identifiable with respective to the product, the same is
    not true with joint costs and hence joint costs requires allocation or assignment of costs to
    individual products. Different methods are used to allocate costs incurred in such conditions which
    are broadly classified as
     Engineering Method (Net Realizable Value Method)
     Non-Engineering Methods (Sales Value Method)

    In Engineering method, cost allocation is done based on their relative physical measure like
    weight, volume etc.
    In Non-Engineering method, cost allocation is done based on the sales and market share of the
    product (Higher the market share/sales, higher the costs assigned)

    Example
    Consider production of Petrol. While processing/refining crude oil (Petroleum), apart from Petrol,
    products like Diesel, Gasoline, Kerosene, Asphalt, Lubricating oils, Petrochemicals etc. are
    produced.
    Joint costs are incurred in producing these products and it’s impossible to allocate costs incurred
    to individual products but separate costs may be calculated after split-off point (stage after which
    different refining processes are to be followed to obtain a particular product). Here, joint costs are
    allocated based upon the proportion of their quantity and sales value.

    SEPARATE COSTS
    PETROL
    JOINT COST SPLIT-OFF POINT
    DIESEL
    PROCESSING CRUDE OIL REFINED PETROLEUM
    KEROSENE
    GASOLINE

    Net Realizable Value Method: The amount a company should expect to receive once it sells or
    dispose of an Asset, minus costs that stem from its sale or disposal.
    Example: ABC ltd. is rid of an outdated computer and expect to sell them at $10000 to a local
    buyer but it must pay $500 to ship and another $50 to complete a paper work. Therefore, computer
    Net Realizable Value is – (10000 – 500 – 50) = $9450.
    NRV is a common way to assist asset worth in inventory account. Many company used it to
    determine that how much their account receivable be expected to become cash. Therefore, goods
    don’t get over or under valued.

    The relative sales value method is a technique used to allocate joint costs based on the prices at
    which products will be sold. For example, a production process incurs $100 of costs in order to
    create two products, one of which (Product A) will sell for $400 and the other (Product B) for
    $100.

    Under this method, 80% of the $100 joint cost is assigned to Product A. The calculation is:
    $100 joint cost x ($400 ÷ ($400+$100)) = $80

    The remaining 20% of the $100 joint cost is assigned to Product B. The calculation is:
    $100 joint cost x ($100 ÷ ($400+$100)) = $20

    The resulting cost allocation equitably spreads costs across products, resulting in roughly the same
    margins for each product. However, product margins may still vary, depending on the costs
    incurred by each product after the allocation point.

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