Joint Cost Analysis For Managerial Decisions And Profitability Analysis : Real profit of a product depends on Actual Cost of that product. So cost analysis is a must job for the manager. Joint costs allocation methods indicate only too forcefully that the amount of the cost to be apportioned to the numerous products emerging at the point of split-off point is difficult to establish for any purpose.
In Joint Cost Analysis, the acceptance of an allocation method for the assignment of joint costs does not solve the problem. The thought has been advanced that no attempt should be made to determine the cost of individual products up to the split-off point; rather, it seems important to calculate the profit margin in terms of total combined units.
Of course, costs incurred after the split-off point will provide management with information needed for decisions relating to the desirability of further processing to maximize profits. Manufacturing of joint products is greatly influenced by both the technological characteristics of the processes and by the markets available for the products. This establishment of a product mix which is in harmony with customer demands appears profitable but is often physically impossible. As a result, for Managerial Decisions And Product Profitability Analysis, the foremost work is Cost Analysis.
It is interesting to note that cost accounting in the meat-packing industry serves primarily as a guide to buying, for aggregate sales realization values of the various products that will be obtained from cutting operations are considered in determining the price that a packer is willing to pay for livestock. Sales realization values are also considered when deciding to sell hams or other cuts in a particular stage or to process them further. Joint costs are often incurred for products that are either interchangeable or not associated with each other at all. Increasing the output of one will in most joint costs situations unavoidably increase to some extent the output of the other.
These situations fall into the category of the cost-volume-profit relationship and differential cost analysis. Evaluation of many alternative combinations of output can lead to time-consuming computations. Generally, such evaluations are carried out on a computer using sophisticated simulation techniques. Developments in operations research procedures have already provided techniques helpful in solving such problems.
