Market value calculation

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Market value calculation is a calculation method that is used in joint production processes in which no clear main product is created. The residual value calculation is used for joint production processes that produce a clear main product and one or more by-products .

Examples of joint production processes

  • When pebbles are extracted, the second product is gravel sand.
  • The production of boards for the furniture industry inevitably results in the production of firewood.
  • In addition to coke, gas, tar and benzene are also produced in coking plants.
  • In the case of petroleum distillation, oils, gasoline and gases are inevitably produced.
  • When cutting meat and processing raw milk, numerous breakdown products are produced.

Load capacity versus causation principle

When calculating co-products, the causation principle that is otherwise common in cost accounting can not be applied, since two or more products inevitably arise in the same production process. Which of the products caused how much costs cannot be determined.

The costs of the starting product to be distributed thus have the character of overheads. Their assignment to the co-products is always arbitrary .

In addition to the residual value method, the market value calculation is available for this purpose. It is given preference above all if there is no clear main product among the co-products.

The market value calculation is a form of the equivalence number method in which the equivalence numbers are derived from the market values ​​of the co-products. It is based on the sustainability principle, according to which each co-product is allocated as much costs as it can "bear". As a result, all co-products achieve the same contribution margin per unit of measure (ME), measured as a percentage of the revenue per ME.

Calculation of the unit cost

In a joint production process, the three main products A, B and C. The total manufacturing costs of the production process amount to € 28,650. The following data is also known for the three products:

product Produced amount Market price
A. 1,000 15th
B. 700 10
C. 900 18th

In order to now carry out the unit costing of the three co-products, the table is expanded to include the three columns revenue, costs and unit costs:

product amount price proceeds costs Unit cost DB piece DB% of P
A. 1,000 15th 15,000 11,250 11.25 3.75 25%
B. 700 10 7,000 5,250 7.50 2.50 25%
C. 900 18th 16,200 12,150 13.50 4.50 25%
Total: 38,200 28,650

The "Revenue" column in the table results from multiplying the quantities produced by their market prices. The sum of the proceeds from all three products is € 38,200. For every euro of proceeds there are costs:

If you multiply the values ​​in the "Revenue" column by € 0.75, you get the costs for products A, B and C.

To calculate the unit costs, the total costs must be divided by the quantities produced.

Application in practice

In the case of volatile prices of co-products, one difficulty in application is to choose the "suitable" period from which the market values ​​are used.

In practice, there is no generally applicable procedure for doing this. It essentially depends on the purpose of the calculation results (inventory valuation, sales control, etc.).

Criticism of the market value calculation

  • The causation principle is not taken into account
  • The market prices are arbitrarily chosen equivalence numbers

literature

  • Klaus Olfert: cost accounting . 8th, revised and expanded edition. Friedrich Kiehl Verlag, Ludwigshafen (Rhein) 1991, ISBN 3-470-70408-2 .
  • Däumler, Grabe: cost accounting 1, basics . 4th, revised edition. New Economic Letters, Herne / Berlin 1990, ISBN 3-482-70734-0 .
  • Edgar Wenz: Cost and performance accounting with an introduction to cost theory . Verlag Neue Wirtschaftsbriefe, Herne / Berlin 1992, ISBN 3-482-45231-8 .

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