Ottawa Ltd. produces two products from a joint process. Information about the two joint products is as follows: $\begin{array}{lcc}
&\text { Product } & \text { Product } \
&\mathrm{X} & \mathrm{Y}\
\text { Anticipated production (in kgs) } & 2,000 &4,000\
\text { Selling price per kg at split-off } & £ 30& £16 \

\text { Additi onal processing costs per } \mathrm{kg} \
\text { after split-off (all variable) }
& £ 15& £30 \
\text { Selling price per kg after } & \
\text { further processing }&£40&£50
\end{array}$
-Refer to Figure 6-12. Ottawa currently sells both products at the split-off point. If Ottawa makes decisions that maximize profit, Ottawa's profit will increase by
A)£16,000.
B)£4,000.
C)£50,000.
D)£10,000.

Question

Ottawa Ltd. produces two products from a joint process. Information about the two joint products is as follows: $\begin{array}{lcc}
&\text { Product } & \text { Product } \
&\mathrm{X} & \mathrm{Y}\
 \text { Anticipated production (in kgs) } & 2,000 &4,000\
 \text { Selling price per kg at split-off } & £ 30& £16 \

\text { Additi onal processing costs per } \mathrm{kg} \
\text { after split-off (all variable) }
 & £ 15& £30 \
\text { Selling price per kg after } & \
\text { further processing }&£40&£50 
\end{array}$ 
-Refer to Figure 6-12. Ottawa currently sells both products at the split-off point. If Ottawa makes decisions that maximize profit, Ottawa's profit will increase by
A)£16,000.
B)£4,000.
C)£50,000.
D)£10,000.

Quizplus · Accepted Answer

If Ottawa makes decisions that maximize profit, it should process both products further. The additional profit from processing Product X is £10,000 (2,000 kgs x £5/kg) and the additional profit from processing Product Y is £6,000 (4,000 kgs x £1.50/kg). The total additional profit is £16,000.

Ottawa Ltd -Refer to Figure 6-12