Sell Or Process Further Joint Products
Many manufacturing organizations produce varieties of products to satisfy their
consumers and customers for earning profit.
The products can be produced using different types raw materials, labours and
facilities separately or using common raw material, labors and facilities jointly.
If products produced using common raw materials and inputs are called joint
products. The total costs incurred to produce such products are called joint
product costs.
The point or stage at which the products can be separated from individually is
called split off point.
At this point some products may be final for sale and remaining will need further
process to make it saleable in the market.
The main problem is allocation of joint product cost to joint products.
Sell or Further Process decision
• Therefore, there are various techniques and
methods for allocation of joint cost to each product.
• The main techniques are unit method, sales value
method, net realization value less normal profit
method, and weighted average method.
• However, the mostly used approach in allocating
joint cost is the proportion of its sales value method.
• Therefore, joint cost can be allocated to each joint
product on the proportion of the market value/sales
value of the product.
• Sell or process further decision is a decision as to
whether joint products should be sold at split off point
or further process and sell them in different form.
• In this decision, joint costs are irrelevant and remain
unaffected because they are sunk cost.
• Generally, selling products after processing further will
be more profitable than selling at split off point.
• However it is not necessary to be profitable. It may also
be less profitable.
• In sell or further process decision, comparative
statement of alternatives or incremental statement
should be prepared.
• If total net income after processing further is greater
than net income under selling at split off point, then
further processing will be more attractive and vice
versa. Sometimes, products will be more profitable
to sell at split off than selling after processing
• In order to maximize the profitability of the
organization, sometimes, some products should be
sold at split off point and remaining after processing
CASE: Rolex Company manufactures three products from a
common input in a joint processing operation. Joint processing
costs up to the split–off point total $100,000 per year. The
company allocates these costs to the joint products on the basis of
their total sales value at the split–off point. These sales values are:
product X, $50,000; product Y, $90,000; and product z, $60,000.
Each product may be sold at the split–off point or processed
further. Additional processing requires no special facilities. The
additional processing costs and the sales value after further
processing for each product (on an annual basis) are:
Additional Processing Costs
Sales Value
$ 35,000
$ 80,000
Required: Which product or products should be sold at the split–off
point, and which product or products should be processed further?
Show computation

Sell Or Process Further Joint Products Decision