Gross Margin Percent Essay

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Unitron Corporation The RSV method has a number of twists that can result in many different unit costs for the five
Question 1 products. For inventory costing purposes, any The idea here is to construct a "Produced systematic cost allocation system will do. The basic
As/Sold As Matrix" (400,000 x 400,000). Obviously, idea of the relative sales value scheme is that all sales the possible combinations are endless, so how does one should show gross margin percent equal to the average choose a "best" approach? The "best" solution is to gross margin percent across the full joint product set. start with demand for the highest value product (405) This average is 19% [(246 - 200) (246)]. This does and work back unsold production to the
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Otherwise, given the of $456), it is necessary to consider all 6000 of the uncertainly about by-product revenues in the case, even items shipped to be 401's. This means violating the average cost calculation becomes very complex. the costing rule. Use a 401 cost, not a 402 cost, for If the "by-product" units (400s) are the 402's shipped as 401's. considered a joint product, the average cost is $0.40 per unit ($200,000 ( 500,000 units).

This question in the case is a set-up to see if But, whether 400's are considered joint you will be more concerned about consistent products or by-products doesn't really change the application of rules or consistent application of the economics of the toy company offer. The "Relevant basic idea underlying the rules. Our experience is that Cost" for the "seconds," for purposes of evaluating most students see the rules as more important than the this offer is Opportunity Cost. concept! They will use method (A) here far more often If I sell them now for $0.15, will I lose an than method (B). We believe only method (B) is opportunity to sell them later for enough more than proper, but we have had CPAs argue otherwise in class! $0.15 to make up for the time value of the foregone cash Since some 402's will be sold as 401's during inflow? the year anyway, the issue really is one of Annual output is 100,000 units and inventory manufacturing scheduling! Is it
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