Dowchow Corporation makes two products from a common input.Joint processing costs up to the split-off point total $38, 400 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: What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?
A)$22, 400
B)$43, 400
C)$20, 800
D)$45, 000

Question

Dowchow Corporation makes two products from a common input.Joint processing costs up to the split-off point total $38, 400 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:  What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?
A)$22, 400 
B)$43, 400 
C)$20, 800 
D)$45, 000

Quizplus · Accepted Answer

To determine the minimum amount the company should accept for Product X if it is to be sold at the split-off point, we need to use the sales value at the split-off point for each product. 
From the table, we can see that the total sales value at the split-off point for both products is $50,000 ($30,000 for Product X and $20,000 for Product Y).

To allocate the joint processing costs, we need to calculate the sales value ratio for each product. 
Sales value ratio for Product X = $30,000 / $50,000 = 0.6 
Sales value ratio for Product Y = $20,000 / $50,000 = 0.4

Now we can allocate the joint processing costs to each product based on their sales value ratios.

Joint processing costs allocated to Product X = $38,400 x 0.6 = $23,040 
Joint processing costs allocated to Product Y = $38,400 x 0.4 = $15,360

If Product X is sold at the split-off point, the company should accept any price above its allocated joint processing costs of $23,040. 
Therefore, the minimum amount the company should accept for Product X is $22,400 ($23,040 - $640, which is the additional processing cost for Product X). 
Thus, the best choice is A) $22,400.

Dowchow Corporation Makes Two Products from a Common Input