Beware of Unit Costs,Costs Beyond the Split-Off Point Are Not

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The Answer is Solution to Beware of Unit Costs,Costs Beyond the Split-off Point are not Necessarily all Variable (20 minutes)
"Beware of unit costs." Table 8-12 relies on the line item "Costs beyond the split-off point." These numbers are stated as unit costs.For example,80¢ is the cost of processing the chicken fillets beyond the split-off point to the selling point.How was this 80¢ determined? Are these unit costs variable costs or do they contain any fixed or common costs?
For example,suppose the 80¢ contains the fixed cost of a machine used to process the fillets.Then,one is introducing a cost allocation into a product line profitability assessment.For example,if volumes increased,the allocated unit cost of the machine would fall and the 80¢ falls.The firm's cash flow does not fall by 80¢ every time it processes another breast if the 80¢ contains a unitized fixed cost.Also,if the 80¢ contains a common cost,then again the analysis in Table 8-12 is misleading.For example,suppose a maintenance worker maintains all the equipment used to further process fillets,wings,and drumsticks.This maintenance person's cost is a common cost.If the maintenance person's salary is allocated to the three products' "costs beyond the split-off point," then these unit costs do not represent the marginal cost of processing an additional part.
Therefore,one critical assumption underlying Table 8-12 is that the unit costs stated as the costs beyond the split-off point do not contain any fixed or common cost.

Beware of Unit Costs,Costs Beyond the Split-Off Point Are Not

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