What guideline should be sued in determining whether a joint product should be sold at the split-off point or processed further? 12-15. If the incremental revenue from further processing exceeds the incremental costs of further processing, the product should be processed further.
Are allocated joint processing costs relevant when making a decision to sell a joint product at the split-off point or process it further Why?
Joint processing costs have no influence on the sell or process furthur decisions as they reprsent the costs which have already been incurred. So, joints cost are not relevant in sell or process furthur decisions.
How is it going sell or process further?
The sell or process further decision is the choice of selling a product now or processing it further to earn additional revenue. This choice is based on an incremental analysis of whether the additional revenues to be gained will exceed the additional costs to be incurred as part of the additional processing work.
What costs are irrelevant for a decision as to whether to sell a product or process it further?
Joint costs are irrelevant for your “sell or process further” decision. Those costs are the same, whether you sell the product at splitoff or process further. In this case, joint costs are sunk or past costs. In other words, they’ve already been paid.
What kind of cost is always relevant?
Relevant costs are those costs that differ among the alternative courses of action. In some situations (such as make or buy) most variable costs would be considered relevant. However, there are many situations when some or all variable costs would be the same for two alternatives and therefore not be relevant.
Which product should be sold at the split-off point?
Which product(s) should be sold at the split-off point? Answer: A product should be sold at the split-off point if there is not any incremental profit from processing the product further. As long as the process as a whole is profitable, it is irrelevant if an individual product is not profitable.
Why joint costs are irrelevant in a sell-or-process-further decision?
Incremental cost is the additional cost. They are allocated to the individual products. This is done based on the relative salves value of the joint products. It is irrelevant for any sell-or-process-further decisions because the joint product cost are sunk cost.
Which products should be sold at split off and which products should be processed further?
Are all future costs relevant in decision making?
Relevant costs are those costs that will make a difference in a decision. Future costs are relevant in decision making if’ the decision will affect their amounts. Relevant costs are future costs that will differ among alternatives. …
Why are joint costs not allocated among joint products?
Joint costs should not be allocated among joint products for decision-making purposes. If joint costs are allocated among the joint products, then managers may think they are avoidable costs of the end products.
When do managers think joint costs are avoidable?
If joint costs are allocated among the joint products, then managers may think they are avoidable costs of the end products. However, the joint costs will continue to be incurred as long as the process is run regardless of what is done with one of the end products.
When does a product have an apparent loss?
An apparent loss may be the result of allocated common costs or of sunk costs that cannot be avoided if the product is dropped. A product should be discontinued only if the contribution margin that will be lost as a result of dropping the product is less than the fixed costs that would be avoided.
When does a product need to be discontinued?
A product should be discontinued only if the contribution margin that will be lost as a result of dropping the product is less than the fixed costs that would be avoided. Even in that situation the product may be retained if it promotes the sale of other products.
