Bowen Company Produces Products P,Q,and R from a Joint Production

question 52

Essay

Bowen Company produces products P,Q,and R from a joint production process.Each product may be sold at the split-off point or be processed further.Joint production costs of $81,000 per year are allocated to the products based on the relative number of units produced.Data for Bowen's operations for the current year are as follows:
$\begin{array}{|l|r|r|r|}\hline & & \text { Allocated Joint } &{\text { Sales Value }} \\\hline \text { Product } & \text { Units Produced } & \text { Production Cost } & \text { At Split-off } \\\hline \mathrm{P} & 4,000 & \$ 28,000 & \$ 38,000 \\\hline \mathrm{Q} & 7,000 & 49,000 & 47,000 \\\hline \mathrm{R} & 2,000 & 14,000 & 16,000 \\\hline\end{array}$
Product P can be processed beyond the split-off point for an additional cost of $10,000 and can then be sold for $50,000.Product Q can be processed beyond the split-off point for an additional cost of $35,000 and can then be sold for $65,000.Product R can be processed beyond the split-off point for an additional cost of $6,000 and can then be sold for $25,000.
Required:
Which products should be processed beyond the split-off point?
$\begin{array}{|l|r|r|r|}\hline& \mathrm{P} & \mathrm{Q} & \mathrm{R} \\\hline \text { Sales value after further processing } & \$ 50,000 & \$ 65,000 & \$ 25,000 \\\hline \text { Sales value at split-off } & 38,000 & 47,000 & 16,000 \\\hline \text { Added sales value from processing } & \$ 12,000 & \$ 18,000 & \$ 9,000 \\\hline \text { Added processing costs } & 10,000 & 35,000 & \underline{6,000} \\\hline \text { Net gain (loss) from further processing } & \$ 2,000 & \$(17,000) & \$ 3,000 \\\hline\end{array}$

Identify the factors contributing to the demand for labor in perfectly competitive markets.

Calculate the marginal cost and value of marginal products for decision-making in hiring and production.

Distinguish between marginal product, average product, and their impact on production and hiring decisions.

Understand the concept of diminishing returns to labor and its effect on production.

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Definitions:

Human Capital

The skills, knowledge, and experience possessed by an individual viewed in terms of their value or cost to an organization or country.

Compensating Differential

The difference in wages that compensates workers for undesirable aspects of a job, such as long hours or dangerous conditions.

Human Capital

The qualifications, know-how, and lived experiences of a person or society, assessed in terms of their profitability or cost to a business or country.

Compensating Differential

The additional amount of income that a worker requires to accept a job with undesirable features, compared to a similar job with more favorable features.