Question

When is it profitable to continue processing a joint product after the split-off point?

a. It is profitable when the incremental revenue exceeds the incremental processing cost.
b. It is never profitable.
c. It is profitable when the incremental processing cost exceeds the incremental revenue.
d. It is always profitable.

Answer 1

The answer is: A) It is profitable when the incremental revenue exceeds the incremental processing cost.

Step-by-step explanation:

The split-off point is the point where joint products are manufactured separately as two or more distinct products. After the split-off point, each individual product's costs can be identified. Before the split-off point, both manufactured products shared the production costs.

So after the split-off point each individual product will continue to be processed as long as the incremental revenue is larger than the incremental cost. For example, processed milk will continue to be processed into cheese, butter, etc., as long as the incremental revenue exceeds the incremental costs, i.e. the high price of butter justifies the extra processing.