Copeland, Inc., produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade the product to become Xylene. The following information has been gathered:

I. Selling price per pound of X-547

II. Variable manufacturing costs of upgrade process

III. Avoidable fixed costs of upgrade process

IV. Selling price per pound of Xylene

V. Joint manufacturing costs to produce X-547

Which items should be reviewed when making the upgrade decision?

Answer (B) is correct. Common, or joint, costs cannot be identified with a particular joint product. By definition, joint products have common costs until the split-off point. Costs incurred after the split-off point are separable costs. The decision to continue processing beyond split-off is made separately for each product. The costs relevant to the decision are the separable costs because they can be avoided by selling at the split-off point. They should be compared with the incremental revenues from processing further. Thus, items I. (revenue from selling at split-off point), II. (variable costs of upgrade), III. (avoidable fixed costs of upgrade), and IV. (revenue from selling after further processing) are considered in making the upgrade decision.