Question

managers must decide whether a product should be sold at splitoff or processed further. the sales value at splitoff method of joint-cost allocation is the best method for generating the information managers need for this decision.” do you agree? explain.

Answer 1

No, I dont agree. The method of sales value at splitoff method of joint-cost allocation should not be used for managerial decision making to decide whether a product should be sold at splitoff or processed further. When a product is a result of joint process, then decision of processing further should not be affected by total joint costs or partial joint costs allocated to each product. For these decisions, joint costs are not the best method. Relevant items that should be considered are the incremental revenue and incremental cost beyond splitoff point. Method that allocate joint costs on the basis of revenue at splitoff, physical measure such as quantity, weight etc also helps for generating the information managers need for decision making. Sales value per ton is related with the amount pf profit. Hence, high sales value per ton results in higher profits and low sales value per ton results in losses.