12.13: Sell or Process Further Decisions
Learning Outcomes
- Create a report outlining the data to support a sell or process further decision
So, what should we do with each grind of flour? The purchase price of the wheat, and grinding it into flour are joint costs. We have to get it this far to sell it. But what happens if we decide to bag it for retail sale? Well, let’s look at this information in an excel spreadsheet:
| Flower Power, Inc | |||
| Sell or Process Further | |||
| Coarse Flour | Fine Flour | Bread Flower | |
| Sales value after all processing | $34,000 | $50,000 | $31,000 |
| Less: sales value at the split-point | $30,000 | $40,000 | $20,000 |
| Incremental revenue from further processing | $4,000 | $10,000 | $11,000 |
| Less: cost of bagging | $5,000 | $5,000 | $5,000 |
| Profit (loss) from bagging the flour | ($1,000) | $5,000 | $6,000 |
So, where do you think we should sell each of our grinds of flour?
Course flour should probably be sold in bulk, since the cost of continuing to process it, is more than the incremental revenue we will gain. But processing and bagging the fine grind and bread flour looks like a good idea!! Again, there may be other issues, such as equipment purchases or opportunity costs that come into play, but if we look just at the incremental revenue and expenditures from the continued processing,
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If you would like to see an additional explanation of selling or processing further, take a look at this video .
Practice Questions