Tugas 3 UT Akbi No 3

Summary

This video explains the concept of shared cost allocation in a company that produces multiple products. It focuses on how fixed costs, such as building depreciation, are allocated among products and how these costs affect the profitability of each product. The presenter discusses how to calculate profit or loss by subtracting shared costs from revenue. The key point is that shared costs are unavoidable and remain even if a product is discontinued. However, decisions about discontinuing a product should also consider variable costs, as these can be avoided, potentially making the product's continued production more viable.

Takeaways

• 😀 Shared costs are fixed and unavoidable, meaning they must be allocated to each product regardless of production levels.
• 😀 The main focus is on allocating shared costs, such as building depreciation, to the various products (A1, A2, A3, A4, A5).
• 😀 Profit or loss for each product is calculated by subtracting allocated shared costs from the product's revenue.
• 😀 If the result of the profit/loss calculation is positive, the product is profitable; if negative, it is unprofitable.
• 😀 Even if a product is unprofitable, its fixed shared costs will not disappear if the product is discontinued, as these costs are unavoidable.
• 😀 Discontinuing a product is not always the best decision because shared costs will still need to be covered by the remaining products.
• 😀 The decision to discontinue a product should also consider its variable costs, which are directly tied to the product's production and sales.
• 😀 If a product’s revenue still contributes to covering shared costs, it may be better to keep it in production despite a loss.
• 😀 The cost allocation involves both shared fixed costs (e.g., building depreciation) and variable costs that fluctuate with production levels.
• 😀 A comprehensive evaluation should be conducted before discontinuing a product, taking into account both fixed and variable costs.
• 😀 The key question in discontinuing a product is whether it still helps cover shared costs or if stopping it would increase the financial burden on other products.

Q & A

What are joint costs, and why are they relevant in this scenario?

Joint costs are expenses shared across multiple products or services, such as the cost of maintaining a building that serves multiple production lines. In this scenario, joint costs are allocated to different products based on their usage or production level, and they play a critical role in calculating each product's profitability.

What is meant by 'fixed costs' in the context of this transcript?

'Fixed costs' are costs that do not change regardless of the level of production. In this case, the building's depreciation is an example of a fixed cost. Even if one or more products are discontinued, these costs will remain the same.

How should the profit or loss of each product be calculated?

To calculate the profit or loss for each product, subtract the allocated joint costs from the revenue generated by each product. A positive result indicates a profit, while a negative result indicates a loss.

What happens if a product is discontinued due to losses?

Discontinuing a product due to losses may not solve the issue because the joint costs (like building depreciation) are fixed and unavoidable. These costs will still need to be covered by the remaining products, potentially increasing their costs.

Why might discontinuing a product not be the best solution, even if it is running at a loss?

Discontinuing a product may not reduce fixed costs, as they are incurred regardless of production. It could also lead to a higher allocation of those fixed costs to the remaining products, making them less profitable. A thorough analysis, including the evaluation of variable costs, is needed to make an informed decision.

What role do variable costs play in the decision to discontinue a product?

Variable costs are directly tied to production levels, and they would be avoided if a product is discontinued. However, fixed costs, which are part of the joint costs, would still need to be covered. Analyzing variable costs can help determine whether discontinuation leads to significant savings.

How does the allocation of fixed costs change if some products are discontinued?

If some products are discontinued, the fixed costs previously shared between all products must be reallocated among the remaining products. This can increase the cost per unit for the remaining products, potentially reducing their profitability.

Why is it important to perform further research before deciding to discontinue a product?

Further research is needed to understand the full financial impact of discontinuation. This includes analyzing both fixed and variable costs, the remaining product's ability to absorb the fixed costs, and the potential for improving sales or reducing other expenses.

What type of costs are considered 'unavoidable' in the context of this problem?

Unavoidable costs are those that remain fixed regardless of the production decisions. In this scenario, joint costs like building depreciation are considered unavoidable because they will be incurred even if a product is discontinued.

What is the significance of understanding cost allocation when evaluating product profitability?

Understanding cost allocation is crucial because it helps determine the true profitability of each product. If the allocation of joint costs is not considered properly, it could lead to incorrect conclusions about the viability of a product, either overestimating or underestimating its contribution to the overall business.