When making the decision of whether to process further a joint product, it is generally better to allocate the joint costs using the relative sales value method to ensure the correct decision is made.

Question

Quizplus · Accepted Answer

The decision to process a joint product further beyond the split-off point should not be based on the allocation of joint costs because these costs are sunk costs and do not change with the decision. The decision should be based on whether the incremental revenue from processing further exceeds the incremental costs of processing.

When Making the Decision of Whether to Process Further a Joint