Joint Costs, Separable Costs, and Using Up the Leftovers
In This Chapter
Distinguishing between joint costs and separable costs
Finding the splitoff point
Determining costs and product values at splitoff
Thinking about stopping or continuing production
Different products may go through the same production process, making it difficult to differentiate costs among products early in production. During this stage, your firm is incurring joint costs.
At some point, however, the products in production become separate and distinct from one another. For example, when you drill for oil, you eventually separate the crude oil from the other materials you take out of the ground. Then you apply costs to each product to better compute a sale price and your profit. Accountants call this the splitoff point. After splitoff, you consider each product’s costs separately. Then you work with separable costs.
Ultimately, most production processes have some output that’s ...