Reference no: EM131786793

Problem: Sell or Process Further Decisions

Joint products have common processes and costs of production up to a split-off point. At that point, they become distinguishable. For example, certain minerals such as copper and gold may both be found in a given ore. The ore must be mined, crushed, and treated before the copper and gold are separated. The point of separation is called the split-off point. The costs of mining, crushing, and treatment are common to both products.

Often, joint products are sold at the split-off point. But sometimes, it is more profitable to process a joint product beyond the split-off point prior to selling it. The key point is that all of the joint production costs are irrelevant to the sell or process further decision. By the time the split-off point is reached, all joint costs are sunk, and therefore, irrelevant. The only relevant costs are those incurred beyond the split-off point.