Problem:
Dowchow Company 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:
Product X Product Y Total
Allocated joint processing costs $20,800 $17,600 $38,400
Sales value at split-off point $26,000 $22,000 $48,000
Costs of further processing $22,600 $20,400 $43,000
Sales value after further processing $45,000 $45,900 $90,900
Q1. What is the net monetary advantage (disadvantage) of processing Product X beyond the split-off point?
A) $1,600 C) $27,600
B) $22,400 D) ($3,600)
Q2. (Ignore income taxes in this problem.) A company with $800,000 in operating assets is considering the purchase of a machine that costs $75,000 and which is expected to reduce operating costs by $20,000 each year. The pay back period for this machine in years is closest to:
A) 0.27 years. C) 3.75 years.
B) 10.7 years. D) 40 years.