1.) Products Alpha and Beta are joint products. The joint production cost of the
ID: 2377170 • Letter: 1
Question
1.)
Products Alpha and Beta are joint products. The joint production cost of the products is $800. Alpha has a market value of $400 at the split-off point. If Alpha is further processed at an additional cost of $600, its market value is $1,400. Product Beta has a market value of $1,200 at the split-off point. If Product Beta is further processed at an additional cost of $300, its market value is $1,400. Using the relative sales value method, calculate the joint product cost that would be allocated to Alpha and Beta. How do you know if one of the products should be further processed?
2.)A company must incur annual fixed costs of $2,000,000 and variable costs of $300 per unit and estimates that it can sell 20,000 pumps annually and marks up cost by 30 percent. Using cost-plus pricing, what is the cost per unit and the price? What are advantages and disadvantages of cost-plus pricing?
Explanation / Answer
1. 1.Net Present Value = Cash Inflow-Outflow/(1+i)^t
=600000-300000/(1+0.09)^8
=$150559.8839
Company should not proceed with project as it's NPV is just about half it's initial investment.
Second part Joint Cost=$800
Contribution of alpha to market= 600/800=0.75=75%
Contribution of beta=25%
SO out of $800 available for joint cost 75% will be alloted to alpha and 25% to beta
SO joint product cost=
(800-600)+150=$350
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