Split-off point

Definition

The split-off point is the stage in the production process where joint products can be recognized as separate and distinct. It is the juncture at which common costs are allocated among the final products.

5 Must Know Facts For Your Next Test

1. The split-off point is crucial for determining whether to sell a product as-is or to process it further.
2. At the split-off point, joint costs are allocated to different products based on a rational method.
3. Decisions made at the split-off point impact profitability and cost management.
4. Understanding incremental revenue and incremental cost beyond the split-off point is essential.
5. Common methods of allocating joint costs at the split-off point include physical units, sales value at split-off, and net realizable value.

Review Questions

• What is the significance of the split-off point in production processes?
• How are joint costs typically allocated at the split-off point?
• Why is it important to understand incremental revenue and incremental cost when making decisions related to processing further?

Related terms

Joint Costs: Costs incurred up to the split-off point that cannot be directly traced to individual products.

Incremental Revenue: The additional revenue generated from processing a product further beyond its split-off point.

Net Realizable Value (NRV): The estimated selling price of a product minus any costs required to complete and sell it.