Question

A company manufactures three products using the same production process. The costs incurred up to the split-off point are $200,000. These costs are allocated to the products on the basis of their sales value at the split-off point. The number of units produced, the selling prices per unit of the three products at the split-off point and after further processing, and the additional processing costs are as follows.

Product		Number of Units Produced			Selling Price at Split-Off			Selling Price after Processing			Additional Processing Costs
D			4,000			$10.00			$15.00			$14,000
E			6,000			11.60			16.20			20,000
F			2,000			19.40			22.60			9,000

Which information is relevant to the decision on whether or not to process the products further? Explain why this information is relevant. Would your decision be different if the company was using the quantity of output to allocate joint costs? Explain.

Answer 1