Dorsey Company manufactures three products from a common input in a joint proces

Question

Dorsey Company manufactures three products from a common input in a joint processing operation Joint processing costs up to the split-off point total $99,000 per quarter. 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: Quarterly Output Product Selling Price S5 per pound 1,000 pounds 6 per pound $12 per gallon 5 16,000 pounds 5,000 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: Additional ProductProcessing Costs S 41,000 S 38,000 S 16,250 Selling Price $ 7 per pound $ 10 per pound S 16 per gallon Required a. Compute the incremental profit (loss) for each product. Product A Product B Product C Selling price after further Selling price at the split-off point Incremental revenue per pound or gallon Total quarterly output in pounds or gallons Total incremental revenue Total incremental processing Total incremental profit or loss costs b. Which product or products should be sold at the split-off point? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.) Product A Product B Product C c. Which product or products should be processed further? (You may select more than one answer Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.) Product A Product B Product C

Explanation / Answer

a. Incremental profit/ (loss) for each product

b. Products to be sold at split of point - Product A

Since the further processing results into loss, product A should not be further processed.

c. Products to be processed furthered - Product B and Product C

Since the further processing results into profit, Product B and product C should be further processed.

Particulars Product A Product B Product C Selling price after further processing $7 per pound $10 per pound $16 per gallon Selling price at the split of point $5 per pound $6 per pound $12 per gallon Incremental revenue per pound or gallon $2 $4 $4 Total quarterly output in pounds or gallons 11000 16000 5000 Total incremental revenue $22000 $64000 $20000 Total incremental processing cost $(41000) $(38000) $(16250) Total incremental profit or loss $(19000) $26000 $3750

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