Chapter 7, Problem 7.12E

(a)

To determine

Sell or process-further decision:

The purpose of sell or process-further decision is to choose an appropriate alternative that maximizes the operating income. It uses incremental analysis which determines the incremental revenue.

Incremental revenue refers to the difference in the total revenue earned when the product or service is sold at split-off point and the total revenue earned when the product or service is sold after further processing.

If the incremental revenue is more than the incremental costs, the product should be sold after further processing. If the incremental revenue is lesser than the incremental costs, the product should be sold at split-off point.

To explain: The information relevant to the decision on whether to further process the products or not, and the reason behind it.

(b)

To determine

Split-off Point:

Split-off point is referred to as the point at which the joint products will become individually identifiable as the separate products.

To determine: The products to be processed further, and the products to be sold at the split-off point.

(c)

To determine

Decision-making process:

Decision making can be defined as the process of making choices through the identification of a decision, collecting information, and assessing alternative resolutions. The implementation of a step-by-step process of decision making helps in making deliberate and effective decisions through proper organization of relevant information and defining alternatives.

To Explain: Whether the decision would be different if the company was using the quantity of output to allocate the joint costs.