In the context of joint products, when is it profitable to continue processing a joint product after the split-off point?

• A. When the joint product has a higher market price than the other products
• B. When the sunk costs of production are fully recovered
• C. When the incremental revenue from further processing exceeds the incremental cost of processing
• D. When the total cost of production is less than the total revenue from all products

Answer: (C)

Verified step by step guidance

1. Understand the concept of joint products: these are multiple products generated simultaneously from a common input or production process, with a split-off point where the products become separately identifiable.
2. Recognize that costs incurred before the split-off point are joint costs and are sunk with respect to decisions made after the split-off point.
3. Identify that the decision to continue processing a joint product beyond the split-off point depends on comparing additional (incremental) revenues and costs incurred after the split-off point.
4. Formulate the decision rule: continue processing if the incremental revenue from further processing the joint product exceeds the incremental cost of that processing. Mathematically, continue if \(\text{Incremental Revenue} > \text{Incremental Cost}\).
5. Note that other options like comparing total costs to total revenues or market prices alone do not determine profitability after the split-off point because sunk joint costs should not influence the decision.