Asked by Myrana Exantus on Mar 10, 2024
Verified
In a sell or process further decision, consider the following costs:A variable production cost incurred prior to split-off.A variable production cost incurred after split-off.An avoidable fixed production cost incurred after split-off.Which of the above costs is (are) not relevant in a decision regarding whether the product should be processed further?
A) Only I
B) Only III
C) Only I and II
D) Only I and III
A) Only I
B) Only III
C) Only I and II
D) Only I and III
Variable Production Cost
Charges that fluctuate in line with production levels, such as direct labor and materials used.
Split-off
A point in the production process where multiple products are derived from a common input, and separate paths of further processing or sale are identified.
Avoidable Fixed Production Cost
Fixed costs that can be eliminated if a particular product, service, or segment is discontinued.
- Utilize the principles of joint costs and the decision-making procedure for joint products.
- Familiarize oneself with the concepts of sunk costs, opportunity costs, and avoidable costs and their relevance to financial decision-making.
Verified Answer
CH
Chelsea Hughes
Mar 10, 2024
Final Answer :
A
Explanation :
Costs incurred prior to the split-off point are sunk costs and are not relevant to the decision of whether to process a product further. Costs incurred after the split-off point, whether variable or fixed (if avoidable), are relevant because they can be influenced by the decision.
Learning Objectives
- Utilize the principles of joint costs and the decision-making procedure for joint products.
- Familiarize oneself with the concepts of sunk costs, opportunity costs, and avoidable costs and their relevance to financial decision-making.