Question

Briefly describe the treatment of joint costs when making a sell or process further decision

Answer 1

Treatment of Joint Costs when making a sell-or-process further decision:

Joint Costs are irrelevant while making a sell-or-process further decision. This is because the joint costs remain the same irrespective of the outcome of the analysis of sell-or-process further decision. In other words, the joint costs being already incurred at the time of split, are considered as sunk costs and are ignored in decision making. That is the reason why we do not find any consideration given to joint costs under the incremental approach and opportunity cost approach which are the methods available for making sell-or-process further decision.