Accounting for Decision Makers -Discussion Question - Assignment Example

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Jointly manufactured products are dependent on similar raw materials and production process. The manufacturing companies engage in decision-making concerning the sale of a product or the further process…
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Accounting for Decision Makers -Discussion Question Task Port Allen Chemical Company Most manufacturing companies make Sell-or-process further decision. Jointly manufactured products are dependent on similar raw materials and production process. The manufacturing companies engage in decision-making concerning the sale of a product or the further process decision. Joint products share raw materials and production process up to a point known as split-off. At a split-off point, the company can decide to either sell all the products or engage one or two products in a further refining process. The decision to sell-or-process further is based on the cost-benefit analysis of the two decisions. The decision to further process a product after the split-off point invites further costs and revenues known as the incremental costs and revenues (Sell-or-process-further decision, 2013).
Management accountants can support the decision to process further only if it generates more revenue than costs. Based on the case of the Port Allen Chemical company, raw material D is used in the production of products E and F. Based on the case, $ 100 is the cost of converting 100 liters into 60 liters and 40 liters of products E and F respectively. Therefore, the cost of producing 60 liters of product E = (60/100)*100 = $ 60, while the cost of producing 40 liters of product F = (40/100)*100 = $ 40. Product F can be sold at $ 6 or can be further processed at an additional cost of $5/liter and can be sold for $ 13/liter. Based on the information, the incremental revenue per liter = (13 – 6) = $ 7. The approach of the analysis is incremental costs as done below (Hartgraves & Morse, 2015).
Incremental revenue (7*40)
Incremental costs (5*40)
Incremental revenue due to process further
Based on the above table, the decision to process product F further generates more revenue than the cost incurred ($ 80). The incremental approach states that when the difference between the incremental revenue and incremental cost is positive, the process further decision should be implemented. Otherwise, the decision to sell is suitable (Hartgraves & Morse, 2015). Therefore, Port Allen Chemical Company should further process product F.
Hartgraves, A. L., & Morse, W. J. (2015). Managerial accounting. United States?: Cambridge Business Publishers.
Sell-or-process-further decision. (2013). Retrieved from Read More
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