Quantitative or Physical Unit Method--Allocating Joint Product Cost:

Learning Objectives:

1. Explain quantitative or physical unit method of joint cost allocation.
2. Quantitative or physical unit method attempts to distribute the total joint cost on the basis of some unit of measurement, such as pounds, gallons, tons, or board feet. Of course, the unit products must be measurable by the basic measurement unit. If this isn't possible, the joint units must be converted to a denominator common to all units produced, For example, in the manufacture of coke, products such as coke, coal tar, benzol, sulfate of ammonia, and gas are measured in different units. The yield of these recovered units is measured on the basis of the quantity of product extracted per ton of coal.
   

   Example:

   The example shows the use of weight as a quantitative unit method of joint cost allocation:
   

   Products	Yield in Pounds of Recovered Product Per Ton Coal	Distribution of Waste to Recovered Products	Revised weight of Recovered Products	Materials Cost of Each Product Per Ton of Coal
   Coke	1320.00lbs	69.474*	1389.474	$13.895**
   Coal tar	120.00	6.316	126.316	1.265
   Benzol	21.90	1.153	23.053	0.230
   Sulfate of Ammonia	26.00	1.368	27.368	0.275
   Gas	412.10	21.689	433.789	4.335
   Waste (water)	100.00
   	-------------	--------------	--------------	--------------
   Total	2000.00	100.00	2000.000	$20.000
   	=======	========	========	=======
   *[1,320  ÷ (2,000 – 100)] = 69.0474 **(1,389.474 / 2,000  ) × $20 = $13.895

    

   Average Unit Cost Method--Allocating Joint Product Cost:

   Learning Objectives:
   
3. Explain the use of average unit cost method in joint product cost allocation.

verage 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.