Unitron Corporation: Teaching Commentary
This is an excellent short case to introduce the managerial accounting issues related to the "joint cost" problem. Classic microeconomics argues unequivocally that attempts to assign cost to individual products in a "joint" set constitute a complete waste of time--"just maximize the total revenue over the batch." Like the comparable adage to "price so that marginal cost equals marginal revenue," the economists' advice about joint costing is certainly accurate, given the assumptions, but not particularly useful in practice. Most managerial accountants, including this author, believe that there are important managerial issues involved in accounting for joint cost in real companies. This case covers those issues for a real company.
Questions 1, 2, and 3 consider the calculation aspects of the issue. Question 5 considers what cost system to use, emphasizing behavioral considerations. Questions 3 and 4 address decision making under joint costing--how to think about cost when trying to maximize profit. Question 6 blends cost analysis and strategic positioning in a "cost plus" contracting situation.
We teach the case in one (90 minute) class period early in the required managerial accounting course. Questions 1 through 5 will easily fill one class period with useful discussion. We push hard to cover these questions in about 75 minutes so that we can also spend some time on question 6. This last question raises strategic positioning issues while reinforcing the accounting issues from the first five questions. We believe it is important to reinforce with the students the idea that strategic issues are always relevant to the managerial accounting issues, even in the "joint cost" context.
The defense contracting setting for question 6 heightens the costing dilemma--the assignment of joint cost to individual products is not supposed to be useful for decision-making, but the government will only accept a "cost-based price," and choosing a bid