Asked by Anika Singh on Apr 24, 2024
Verified
Relevance of joint costs for decision
The managers of firm LT are facing a decision to discontinue the production process. This process begins with a joint process that yields three products. Each of the three products is further processed after the split-off point. The costs of the entire production process are broken down into two major categories: costs of the joint process before split-off and after split-off. Discuss the relevance of each of these categories of costs to the decision to discontinue the entire production process.
Joint Costs
Joint costs occur when the production process or provision of services generates more than one type of product or output simultaneously, requiring cost allocation among outputs.
Split-off Point
The stage in a production process where different products become separately identifiable and their costs can be assigned individually.
Production Process
The sequence of operations or steps involved in producing a finished good or service from raw materials or components.
- Comprehend the principle of joint costs and their significance in the decision-making process.
- Identify the differences among sunk costs, opportunity costs, and relevant costs when it comes to decision-making.
Verified Answer
ZK
Zybrea Knight
May 02, 2024
Final Answer :
The incremental costs in both categories are relevant to this decision. Since the entire production process may be discontinued, many joint costs are differential and could be avoided through discontinuation of the entire process.
Learning Objectives
- Comprehend the principle of joint costs and their significance in the decision-making process.
- Identify the differences among sunk costs, opportunity costs, and relevant costs when it comes to decision-making.