Question

Product UB40 is one of the joint products in a joint manufacturing process. Management is considering whether to sell UB40 at the split-off point or to process UB40 further into White Claw. The following data have been gathered:

I. Selling price of UB40
II. Variable cost of processing UB40 into White Claw.
III. The avoidable fixed costs of processing UB40 into White Claw.
IV. The selling price of White Claw.
V. The joint cost of the process from which UB40 is produced.
Required:
a. Which of the above items are relevant in a decision of whether to sell the UB40 as is or process it further into White Claw?

Answer 1

Answer and Explanation:

As per the data given in the question,

For incremental revenue the selling price of UB40 should be considered before and to verify incremental profit., after the further process and the value of additional cost should be considered

Hence, I, II, III, IV are relevant for decision making and V is irrelevant for decision making because it is sunk cost.