Dowchow Company Makes Two Products from a Common Input $\$ 38,400$

question 3

Multiple Choice

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:

$\begin{array}{|l|r|r|r|}\hline & \text { Product X } & \text { Product Y } & \text { Total } \\\hline \text { Allocated Joint Processing Costs } & 20,800 & 17,600 & 38,400 \\\hline \text { Sales Value at Split-Off Point } & 26,000 & 22,000 & 48,000 \\\hline \text { Costs of Further Processing } & 22,600 & 20,400 & 43,000 \\\hline \text { Sales Value after Further Processing } & 45,000 & 45,900 & 90,900 \\\hline\end{array}$
-What is the net monetary advantage of processing Product Y beyond the split-off point?

• A) $3,500.
• B) $7,900.
• C) $25,500.
• D) $29,900.

---

Definitions:

Perfect Substitutes

Goods for which the indifference curves are straight lines; the marginal rate of substitution of one good in place of another good is constant, regardless of how much of each an individual consumes.

Consumer Equilibrium

A state where an individual consumer has optimized their utility, given their budget constraints, choosing the best possible goods or service mix.

Budget Constraint

The limits placed on the consumption choices of individuals by their income and the prices of goods and services.

Utility

An indicator of pleasure or contentment obtained from the acquisition and use of products and services.