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Management accounting 2022

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Question:

Why are joint costs irrelevant for decision making?

Author: Hjalmer Pedersen



Answer:

The costs incurred up to the split-off point are past costs, hence they are sunk costs. Sunk costs mean that these costs were incurred anyways and are therefore irrelevant to the decision to sell a joint (or main) product at the split-off point or to process it further. Decision making is forward-looking, and we must therefore focus on the future-oriented alternatives.


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