Ibsen Company Makes Two Products from a Common Input

question 284

Essay

Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $46,000 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:
Required:a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point?b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point?c. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?d. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point?

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Definitions:

Acceptance

In contract law, the unconditional agreement to the terms of an offer, which creates a binding contract.

UCC

The Uniform Commercial Code consists of regulations that oversee business dealings within the United States.

Mirror Image Rule

A principle in contract law stating that an offer must be accepted exactly without modifications for a contract to be formed.

Parol Evidence Rule

A legal principle stating that oral agreements or statements made prior to or at the time of a written contract cannot contradict the terms of the written contract.