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 $94,000 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: 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: Required: Compute the incremental profit (loss) for each product. Which product or products should be sold at the split-off point? Which product or products should be processed further?

Explanation / Answer

1) A B C Selling price after further processing 5 7 21 Selling price at the split-off point 3 4 16 Incremental revenue per pound or gallon 2 3 5 Total quarterly output in pounds or gallons *17000 *22000 *4000 Total incremental revenue 34000 66000 20000 Total incremental processing costs 35000 38000 10000 Total incremental profit or loss -1000 28000 10000 2) A should be sold at split -off point 3) product B & C should be processed further

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