Dodge Company Makes Two Products from a Common Input

question 117

Multiple Choice

Dodge Company makes two products from a common input. Joint processing costs up to the split-off point total $44,800 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:
-What is the net monetary advantage (disadvantage) of processing Product Y beyond the split-off point?

• A) $39,600
• B) $51,000
• C) $13,000
• D) $1,600

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Definitions:

Endowment Effect

A psychological phenomenon where people ascribe more value to things merely because they own them.

Prospect Theory

A behavioral economic theory that describes how people make decisions under conditions of risk and uncertainty, prioritizing losses differently from gains.

Framing Effect

A cognitive bias where people decide on options based on whether they are presented in positive or negative terms.

Framing Effects

Cognitive biases where people react differently based on how choices or information are presented or "framed" to them.