Joint products : a study in costing and the maximisation of returns

Abstract

This study represents an objective approach to joint product manufacturing management . The technological nature of the joint process is such that no causal relationship can be traced between any individual product and a definable proportion of the joint manufacturing costs involved. The cost price of a jointly produced product is consequently indeterminable on a normative basis. Furthermore, although technically interrelated with respect to cost, quantity and in some cases, quality; joint products may each be entirely independent with respect to demand. These factors give rise to managerial problems in respect of the maximisation of returns which are not encountered in other types of manufacturing. Approaches to these problems based on documented Anglo-Saxon cost concepts and procedures were shown to be largely in effective. In PART ONE the basic nature of the joint process was precisely defined. In the light of this definition and its practical implications, the underlying causes of the particular managerial problems associated with joint product manufacturing were examined and analysed. In PART TWO of the study the principles of joint product costing were dis cussed in the light of the technical-economic concept of cost and normative cost particularization theory. Documented allocation methods were examined and it was shown that none of these was generally acceptable or universally applicable with significant results. A specialised process costing system in which prior and post split-off costs are accumulated separately, was developed . This system conforms to normative cost particularization principles and was shown to provide valuable cost control information. By incorporating standard yields and realisable values in this system, yield- value variances can be computed which enable effective measurement of the material efficiency of the joint process.

In PART THREE of the study, pricing and demand forecasting procedures for joint products, and the overall economic optimisation of joint product manufacturing systems were examined. The two final chapters deal with the use of computer optimisation models for planning and decision-making purposes. A particularized cost/realisable value optimisation model for a joint product manufacturing system was developed. This model is based on normative costing principles and relates variable cost-incurring and market factors to total revenue for the system as a whole. Subject to the availability of the necessary constraint data, it can be used to establish the optimum material flow pattern for a complex manufacturing system under various conditions; and to simulate the effect on returns of managerial decisions. The model constitutes an important source of managerial information in a number of respects. It is particularly useful for resource allocation planning, pricing and material efficiency control purposes. Joint product manufacturing plays an important industrial, economic and strategic role in the Republic of South Africa. This thesis is presented in the hope that it will contribute in some way to the more effective exploitation of our natural resources.