Asked by Aliyana Shivji on May 26, 2024
Verified
Why are joint costs never relevant in deciding whether to sell a product at split-off or process it further?
A) Because they are sunk costs
B) Because they are the same under both alternatives
C) Because they have already been allocated to joint products
D) Because they are sunk costs AND because they are the same under both alternatives
Joint Costs
Costs that are incurred up to a split-off point in the production process, making them inseparable costs shared by more than one product.
Sunk Costs
Costs that have already been incurred and cannot be recovered, which should not influence future business decisions since they cannot be changed.
Split-off
A point in a production process where multiple products are generated from a single input, each having its own identifiable market.
- Understand the concept of joint costs and their relevance in decision-making.
- Distinguish between sunk costs, opportunity costs, and relevant costs for decision-making.
Verified Answer
MS
Michael SchneiderMay 26, 2024
Final Answer :
D
Explanation :
Joint costs are considered sunk costs because they have already been incurred by the time the decision to sell or process further is made. Additionally, these costs remain the same regardless of whether the product is sold at the split-off point or processed further, making them irrelevant for this decision.
Learning Objectives
- Understand the concept of joint costs and their relevance in decision-making.
- Distinguish between sunk costs, opportunity costs, and relevant costs for decision-making.