Question

In a joint production process, the allocation of joint (common) costs to each of the joint products being produced is needed principally:

To meet external reporting requirements (i.e., for financial statement preparation purposes).

To determine whether the firm in question should produce at all.

To assess supplier performance.

To determine which products, if any, should be produced beyond the split-off point.

For determining the incremental revenues associated with additional processing of each product.

Answer 1

Answer. The allocation of joint cost to joint products being produced is needed principally to:

1. Determine which product, if any should be produce beyond the split-off point- As to whether it is profitable to sell the product at split off stage without incurring additional processing cost.

2. Determine whether the incremental revenues associated with additional processing of each product - As a product processed further will result in creating an incremental revenue by increasing the selling price of the product after processing further the split-off point.