Question
In: Accounting
What revenue or expense amounts are necessary to make a sell-or-process further decision?
What revenue or expense amounts are necessary to make a sell-or-process further decision?
Solutions
Expert Solution
A decision whether to sell a joint product at split off point or to process it further and sell it in a more refined form called a sell or process further decision.
Joint products are two or more products which have been manufaManufac from the same input and in a same production process.
The point at which joint products leave the joint process is called split off point.
A sell or process further analysis can be carried out in three different ways.
Incremental or decremental approach : calculate the difference between the additional Revenue and additional costs of further processing.if difference is positive the product must be processed further otherwise not.
Opportunity cost appriapp: calculate the difference between net revenue from further processed product and the opportunity cost of not selling the product t split off point. If the difference is positive further processing will increase profit.
Total Project .Approach : compare the profit statements of the both options for each product . The option generating higher profit is choosen.
Thanks
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