Absorption costing includes all manufacturing cost (variable and fixed). Not all manufacturing costs will be relevant to the decision whether to process beyond its current state.
Fixed factory overhead would probably not be relevant to the decision of whether to process a product beyond its current state. It would be relevent only if it would change as a result of a decision to process further. There is a better answer choice available.
Joint costs are not relevant to the decision because they are sunk costs. They have already been incurred.
The only costs that are relevant to a decision to sell or process further are incremental costs. Incremental revenues are also relevant. The increased (incremental) revenues attainable by processing further should be compared with the increased (incremental) costs to process further. If the incremental revenues are greater than the incremental costs, net operating income will be increased as a result of the additional processing, assuming there is a market for the product after the additional processing. The amount of increase in net operating income as a result of the additional processing is the basis for the decision to sell or process further.
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