Question:
Why are joint costs irrelevant for decision making?
Author: Hjalmer PedersenAnswer:
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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