Separable costs
Separable costs are costs incurred on a joint product after the split-off point, traceable only to that product — the figure that matters in a sell-or-process-further decision.
See it move
Product X can be sold at split-off for €50,000, or processed further for €12,000 in separable costs and sold for €68,000. Incremental revenue is €68,000 minus €50,000, or €18,000, which exceeds the €12,000 separable cost by €6,000 — so processing further is the better choice. The €40,000 joint cost plays no part in the decision.
The formula
Variables
- Net benefit of further processing (€)
- Incremental revenue from further processing (€)
- Separable costs of further processing (€)
Positive when the extra revenue from processing further exceeds the separable cost of getting there; joint costs incurred before split-off never enter this comparison.
Check yourself
A joint process splits into Product A and Product B. At split-off, Product A can be sold for €30,000. Further processing costs €9,000 and would allow it to be sold for €42,000. Joint costs incurred before split-off were €15,000. What is the financial effect of processing Product A further rather than selling it at split-off?