Question

All of the following are relevant to sell or process further decision except ______?

1) Costs incurred beyond the split-off point
2) Revenues at the split-off point
3) Joint costs incurred before the split-off point
4) Revenue beyond the spilt-off point

Answer 1

The sell or process further decision involves comparing additional costs and revenue related to processing a product beyond the split-off point, but revenue beyond this point is not relevant for this decision. Microeconomic theory ties into the economics of selling additional output when determining if dumping has occurred.

Step-by-step explanation:

The 'sell or process further' decision is a consideration in managerial accounting where a company must decide whether it is more profitable to sell a product at a given point or to process it further. This decision involves comparing the additional revenue from selling the processed product against the additional costs of processing beyond the split-off point.

All factors such as additional external costs, costs of further processing, market demand, and the prevailing market price can influence this decision. However, revenue beyond the split-off point is not relevant to the sell or process further decision, as this revenue is not part of the incremental analysis comparing costs and benefits at the split-off point.

Microeconomic theory suggests that it is economically rational to sell additional output as long as the price covers the variable costs of production. This is relevant for assessing whether dumping has occurred since dumping involves selling a product in an international market at a price lower than its domestic market or below the cost of production.