Fester Company is considering whether to sell Retox at the split-off point or subject it to further processing and produce a more refined product known as Retox-F. Consider the following items:
I. The selling price of Retox-F.
II. The joint processing cost of Retox.
III. The separable cost of producing Retox-F.
Which of the above items is (are) relevant to Foster's decision to process Retox into Retox-F?
A) I only
B) II only
C) III only
D) I and II
E) I and III

Question

Quizplus · Accepted Answer

The selling price of Retox-F (I) and the separable cost of producing Retox-F (III) are both relevant in deciding whether to process Retox into Retox-F. The joint processing cost of Retox (II) is not relevant because it is a sunk cost and will be incurred regardless of whether Retox is sold at the split-off point or further processed into Retox-F.

Fester Company Is Considering Whether to Sell Retox at the Split-Off