Joint Costs and Decision Making.

The Fido Dog Food Company can use 100 pounds of basic materials to produce any of the following combinations of dog feeds:

a. 20 lbs. of Adult, 10 lbs. of Hi-Pro, and 65 lbs. of Puppy.

b. 30 lbs. of Adult, 15 Ibs. of Hi-Pro, and 55 lbs. of Puppy.

c. 10 Ibs. of Adult, 15 lbs. of Hi-Pro, and 72 lbs. of Puppy.

d. 10 lbs. of Adult, 60 lbs. of Puppy, and 35 lbs. of Lo-Cal.

Differences between weight of inputs and outputs in the above combinations are caused by shrinkage and expansion during production.

In addition to the above combinations, the company has the alternative of converting Hi-

Pro feed into Stress Diet feed, and Puppy feed into Liv-r Flav-r Puppy feed. The cost of converting Hi-Pro into Stress Diet is $0.30 per pound, and there is a normal shrinkage of 5 percent, based on original quantities, in the conversion process. The cost of converting Puppy into Liv-r Flav-r is $0.20 per pound, and there is a normal shrinkage of 10 percent, based on original quantities, in the conversion process.

Sales prices are $1.50 per pound of Adult, $1.60 per pound of Hi-Pro, $1.45 per pound of Puppy, $1.55 per pound of Lo-Cal, $2.00 per pound of Stress Diet, and $1.75 per pound of Liv-r Flav-r. Basic materials cost $30 per 100 pounds, and processing costs are $60 for combination

(a), $80 for combination (b), $85 for combination

(c) and $90 for combination (d).

Required:

a. Determine the most profitable combination of products to produce from the basic material.

b. Would you produce the combination of products selected above if the resources (workers and machines) used per hundredweight could have been used to produce an alternative product or group of products which could bring forth net income of $80? LO.1