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 Selling Price S 5 per pound $ 5 per pound $ 11 per gallon Product 12,000 pounds 17,000 pounds 6,000 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 Processing Costs S 42,000 39,000 S 14,500 Product Selling Price $ 7 per pound $ 9 per pound $ 14 per gallon Required a. Compute the incremental profit (loss) for each product. Product A Product B Product C Selling price after further processing 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 costs Total incremental profit or loss 0

Explanation / Answer

a) Incremental analysis :

b) Product A should be sold at split off point

c) Product B and Product C should be processed further

Product A Product B Product C Sale price after further processing 7 9 14 Sale price at split off point 5 5 11 Incremental revenue per pound and gallon 2 4 3 Total quantity 12000 17000 6000 Incremental revenue 24000 68000 18000 Incremental cost -42000 -39000 -14500 Incremental profit (loss) -18000 29000 3500

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