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Making a decision to process a product further is not influenced by joint cost allocation. However,...

Making a decision to process a product further is not influenced by joint cost allocation. However, it should be based on incremental costs and qualitative factors. Discuss this statement.

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Answer #1

Making a decision to process a product further is not influenced by Joint cost allocation as to whether a joint product should be sold at the split-off point or processed further.

This type of decision is taken by comparing the incremental benefits from further processing with incremental cost.

We have to analyze below points to make decisions:

  1. How much revenue company can generate by selling the product unprocessed
  2. How much revenue company can generate by selling the further processed product.
  3. How much additional cost company will incur to further process the product.
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