What is the Sell or Process Further Decision?The sell or process further decision is the choice of selling a product now or processing it further to earn additional revenue. This choice is based on an incremental analysis of whether the additional revenues to be gained will exceed the additional costs to be incurred as part of the additional processing work. For example, if a green widget can be converted into a red widget at an incremental cost of $1.00 per unit, then processing further is a good idea as long as the incremental price gain to be achieved is at least $1.01 per unit. Show
The sell or process further decision most commonly arises when two or more products are generated by a manufacturing process. At the point when the products can be split apart (the split-off point), there is a choice to sell the goods immediately or attempt to capture additional value by engaging in more processing. This decision may vary over time, based on changes in the market prices of a product at each stage of processing. If the market price declines for a later-stage product, it can make more sense to sell it without additional processing. Conversely, if the market price increases for a later-stage product, the better choice may be to continue with additional processing in order to reap higher profits. 7 - 49Incremental Analysis123.Costs incurred before the split-off point areProblem Solving, IMA: Cost Management 124.Which of the following terms are synonymous? Problem Solving, IMA: Cost Management125.Paul Bunyon Lumber Co. produces several products that can be sold at the split-off pointor processed further and then sold. The following results are from a recent period:Sales ValueAdditionalSales Value afterProductat Split-off_Variable CostsFurther ProcessingGreen lumber$159,600$24,000$178,000Rough lumber124,00028,200173,600Sawdust102,00019,600130,000The additional profit that would result from processing rough lumber further isa.$21,400.b.$49,600.c.$145,400.d.$95,800.Ans: A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC:Problem Solving, IMA: Cost Management 126.Paul Bunyon Lumber Co. produces several products that can be sold at the split-off pointor processed further and then sold. The following results are from a recent period:Sales ValueAdditionalSales Value afterProductat Split-off_Variable CostsFurther ProcessingGreen lumber$159,600$24,000$178,000Rough lumber124,00028,200173,600Sawdust102,00019,600130,000Which products should be processed further?Problem Solving, IMA: Cost Management Incremental Analysis123.Costs incurred before the split-off point areProblem Solving, IMA: Cost Management7 - 39 124.Which of the following terms are synonymous?Problem Solving, IMA: Cost Management 125.Paul Bunyon Lumber Co. produces several products that can be sold at the split-off pointor processed further and then sold. The following results are from a recent period:Sales ValueAdditionalSales Value afterProductat Split-offVariable CostsFurther ProcessingGreen lumber$159,600$24,000$178,000Rough lumber124,00028,200173,600Sawdust102,00019,600130,000The additional profit that would result from processing rough lumber further isa.$21,400.b.$49,600.c.$145,400.d.$95,800.Ans: A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC:Problem Solving, IMA: Cost Management 126.Paul Bunyon Lumber Co. produces several products that can be sold at the split-off pointor processed further and then sold. The following results are from a recent period:Sales ValueAdditionalSales Value afterProductat Split-offVariable CostsFurther ProcessingGreen lumber$159,600$24,000$178,000Rough lumber124,00028,200173,600Sawdust102,00019,600130,000Which products should be processed further?Problem Solving, IMA: Cost Management Which of the following is not relevant in sell or process further decisions?The correct option is: c) Fixed costs
Explanation: Fixed cost is considered a cost that cannot be processed for further decisions as it stays the same over a period of time.
Which of the following is the decision rule of a sell or process further decision?The decision rule in a sell-or-process-further decision is: process further as long as the incremental revenue from processing exceeds: fixed processing costs.
Which of the following is irrelevant in sell or process further decision in case of joint product or byproducts?Fundamentals of the Decision to Sell or Process Further
Any costs incurred prior to the split-off point are irrelevant to the decision to process further as those are sunk costs; only future costs are relevant costs. Even though joint product costs are common costs, they are routinely allocated to the joint products.
Which one of the following does not affect a make or buy decision?Explanation: In a make-or-buy decision the company is deciding whether to manufacture a product or buy it from a supplier. They will look at the costs involved in each alternative. The revenue has nothing to due with the decision since the sales price will be the same whether they make or buy.
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Which of the following is not involved in the sell or process further decision?
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