Dorsey Company (16th Edition) Dorsey Company manufactures three products from a

Question

Dorsey Company (16th Edition)

Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $315,000 per quarter. For financial reporting purposes, the company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows Selling Price A $13.00 per pound B $ 7.00 per pound $ 19.00 per gallon Quarterly Output 11,600 pounds 18,200 pounds Product 2,800 gallons Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below: Selling Price Additional Product Processing Costs $54,640 $77,580 $29,360 $17.40 per pound $12.40 per pound $26.40 per gallon Required: 1. What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point? 2. Based on your analysis in requirement 1, which product or products should be sold at the split-off point and which product or products should be processed further?

Explanation / Answer

1) Financial advantage (disadvantage)

2)

Product A Product B Product C Selling price after further processing 17.40 12.40 26.40 Selling price at split off point 13 7 19 Incremental selling price 4.40 5.40 7.40 Quantity 11600 18200 2800 Incremental revenue 51040 98280 20720 Incremental cost -54640 -77580 -29360 Incremental profit (loss) -3600 20700 -8640

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