Average Unit Cost Method–Allocating Joint Product Cost

Average Unit Cost Method–Allocating Joint Product Cost:

Learning Objectives:

  1. 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.

You may also be interested in other articles from “by products and joint products” chapter

  1. Difficulties in costing by products and joint products
  2. Joint Products and Joint Product Costs
  3. Characteristics of Joint Products and Cost
  4. By Products
  5. Recognition of Gross Revenue
  6. Recognition of Net Revenue
  7. Replacement cost method
  8. Market value method or reversal cost method
  9. The market or sales value method, based on the relative market values of the individual products.
  10. The quantitative or physical unit method, based on some physical measurement unit such as weight, linear measure, or volume.
  11. The average unit cost method.
  12. The weighted average method, based on a predetermined standard or index of production.

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