US CMA Part 1 · Chapter 4 · Question 7 of 22
A joint product can be sold at split-off for $12 per unit, or processed further at an additional cost of $5 per unit and sold for $16. Its allocated share of joint costs is $7 per unit. What should the company do?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Sell at split-off, because further processing would reduce profit by $1 per unit
Explanation
Joint costs are sunk at the split-off point and irrelevant to the decision. Incremental revenue from processing = $16 - $12 = $4, while incremental cost = $5. Processing further reduces profit by $1 per unit, so the product should be sold at split-off.
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