Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773



Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem

Sell at Split-Off or Process Further

Eunice Company produces two products from a joint process. Joint costs are $70,000 for one batch, which yields 1,000 liters of germain and 4,000 liters of hastain. Germain can be sold at the split-off point for $24 or be processed further, into geraiten, at a manufacturing cost of $4,100 (for the 1,000 liters) and sold for $33 per liter.

If geraiten is sold, additional distribution costs of $0.80 per liter and sales commissions of 10% of sales will be incurred. In addition, Eunice’s legal department is concerned about potential liability issues with geraiten—issues that do not arise with germain.


  1. 1. CONCEPTUAL CONNECTION Considering only gross profit, should germain be sold at the split-off point or processed further?
  2. 2. CONCEPTUAL CONNECTION Taking a value-chain approach (by considering distribution, marketing, and after-the-sale costs), determine whether or not germain should be processed into geraiten.


To determine

Describe whether the company should sell Germain at split-off or process further while considering only gross profit.


Sell-or-Process-Further Decision:

Sell-or-process further decision can be defined as the analysis of relevant costing which emphasizes on decision making regarding whether to process the product beyond its split-off point.

The following table represents the most appropriate alternative regarding the sell-or-process further decision:

CostsAlternativesDifferential amount to process further ($)
Sell ($)Process further ($)
Processing cost (4,100)(4,100)
Gross profit24,00028,9004,900

Table (1)

The gross profit to process Germain further is $28,900 which is more than the gross profit to sell at split-off. Therefore, the company should process the Germain product as there is an increase in gross profit worth $4,900 for every 1,000 liters...


To determine

Describe whether the company should process Germain further into Geraiten while taking a value-chain approach.

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