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In a business different types of expenses are involved.They are categorized as per their feature. In this field, few expenses are specified for some specific performance. Bur, some of them, cannot be specified for any particular purpose, those are applied commonly for several purposes hence termed as common cost. Like common cost, joint cost also applied to serve for several purposes.Now why joint costs are not relevant for taking any kind of financial decision is a big question.
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When a manufacturer produces multiple products taking common inputs at the initial stage, then the expenditure of those common Inputs termed as joint cost. As that expenditure is spent jointly for producing those elements. For example –
Coffee powder, coco powder, and chocolate these three different goods are produced from cocoa seeds after several processes. When a food processor produces these three products, then growing expenditure and harvesting expenditure of cocoa seeds are treated as common inputs or joint cost. These expenses are not taken only with expanse of any one of these products.
Relevant and Irrelevant cost
If producer wants to increase the production of chocolate by decreasing the production of coco powder then direct expenditure of chocolate which is only required for making chocolate, will increase. And direct expenditure of coco powder will decrease hence they are relevant cost as they change with the change of production. But growing and harvesting expenses of cocoa seeds remain the same.No change can be found here with the change of production. So this joint cost is termed as irrelevant cost.
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Join cost has no participation in decision
In a small business where multiple goods are manufactured some common expenditures are applied for different production area, such as expenses for rent and telephone, electrical expenses, maintenance cost, transporting expenditure,etc. These are non-variable expenditures remain unchanged weather production is increased or decreased.
Hence, it has no relevancy with production cost directly. So producers need to think about the variable expenses for raw material, labor, etc. for taking any kind of production related decision.
Joint cost does not influence this decision hence, in this regards it is irrelevant.For more, just visit our site myhomeworkhelp.com and avail why joint costs are irrelevant for decision making homework help.
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