# After fulfilling the demand for air court shoe the

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After fulfilling the demand for Air Court shoe, the excess capacity can be used to make the Air Max shoe It depends on Relative use of capacity by the two products
Optimal Use of Limited Resources Suppose the factory can produce seven instead of five Air max shoes per hour of machine time Air Mac shoes are 26% more profitable than Air max (252 200)/200 = 26% AIR Court AIR Max Contribution from 10000 machine hours 10000*10*20=2000000 10000*7*36=2520000 Contribution per machine hour 2000000/10000 = 200 2520000 / 10000 = 252
Optimal Use of Limited Resources In retail stores, the limiting factor is often floor space. The focus is on products taking up less space or on using the space for shorter periods of time. Retail stores seek faster inventory turnover (the number of times the average inventory is sold per year).
Optimal Use of Limited Resources Regular Department Store Discount Department Store Retail Price \$ 4 .00 \$ 3.50 Costs of merchandise and other variable costs \$ 3.00 \$ 3.00 Contribution to profit per unit \$ 1.00 (25%) \$ .50 (14%) Units sold per year 10,000 22,000 Total contribution to profit, assuming the same space allotment in both stores \$ 10,000 \$ 11,000 Faster inventory turnover makes the same product a more profitable use of space in a discount store.
Learning Objective 5 Joint Product Costs : Sell or Process Further Decisions
Joint Product Costs
Joint Product Costs Joint Products: Joint products have relatively significant sales values. They are not separately identifiable as individual products until their split-off point. Split-off point It is that juncture of manufacturing where the joint products become individually identifiable.
Joint Product Costs Separable costs are any costs beyond the split-off point. Joint costs are the costs of manufacturing joint products before the split-off point. Examples of joint products chemicals, lumber, flour, and the products of petroleum refining.
Joint Product Costs Suppose Dow Chemical Company produces two chemical products, X and Y, as a result of a particular joint process. The joint processing cost is \$100,000. Both products are sold to the petroleum industry to be used as ingredients of gasoline.
Joint Product Costs
Illustration of Sell or Process Further Suppose the 500,000 liters of Y can be processed further and sold to the plastics industry as product YA. The additional processing cost would be \$.08 per liter for manufacturing and distribution, a total of \$40,000. The net sales price of YA would be \$.16 per liter, a total of \$80,000.
Illustration of Sell or Process Further Product X cannot be processed further and will sell it in the market at the split off point Product Y should be sold or Can further be processed into YA? Relevant information is the answer. Joint costs : known as past costs and cannot affect anything beyond the split point. Separable costs and revenues beyond the split point should be focussed
Illustration of Sell or Process Further Sell at Split- off as Y Process Further and Sell as YA Difference Revenues \$30,000 \$80,000 \$50,000 Separable costs beyond split-off @ \$.08 - 40,000 40,000 Income Effect \$30,000 \$40,000 \$10,000
Illustration of Sell or Process Further

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• Fall '19
• Limited Resources, Nantucket Nectars, Misspecified Costs

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