Question

Dock Corporation makes two products from a common input. Joint processing costs up to the split-off point total $33,600 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: Product X Product Y Total Allocated joint processing costs 16,800 16,800 33,600 Sales value at split-off point $ 24,000 $ 24,000 $ 48,000 Costs of further processing $ 15,000 $ 18,700 $ 33,700 Sales value after further processing $ 35,500 $ 45,100 $ 80,600 What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point? Multiple Choice $31,800 $20,500 $16,800 $35,500

Answer 1

Answer:

20,500

Explanation:

The minimum price at split off is the benefit of further processing less the cost of this processing.

product X further process sales value:        35,000

cost of further processing:                             (15,000)

minimum accepted price at split-off point: 20,500

The reasoning is as follow: the company will sale at leat to break even.

so the product at split off will be sold at cost.

to get 35,500 worth of goods we must add up to 15,000 dollars

so the initial cost is 35,500 - 15,000 = 20,500