Average Unit Cost Method--Allocating Joint Product Cost:
Learning Objectives:
- Explain the use of average unit cost
method in joint product cost allocation.
Average unit cost method attempts to apportion total
joint
production cost to the various products on the basis of a predetermined
standard or index of production. An average unit cost is obtained by
dividing the total number of units produced into the total
joint
production cost. As long as all units produced are measured in terms of the same unit
and do not differ greatly, the method can be used without too much
misgiving. When the units produced are not measured in like terms, the
method cannot be applied.
Example:
Using the figures at the
market value method page, the procedure can be illustrated as follows:
Total joint production cost / Total number of
units produced
$120,000 / 60,000
=$2 per unit
|
Product |
Units |
Joint production cost Allocated |
|
A |
20,000 |
$40,000 |
|
B |
15,000 |
$30,000 |
|
C |
10,000 |
$20,000 |
|
D |
15,000 |
$30,000 |
|
|
---------- |
|
|
$120,0000
======= |
|
Companies using this method argue that all
products turned out by the same process should receive a proportionate share
of the total joint production cost based on the number of units produced.
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