Dorsey Company manufactures three products from a common input in a joint proces
ID: 2469354 • Letter: D
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:
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:
5
Compute the incremental profit (loss) for each product.
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.)
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.)
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:
Explanation / Answer
Solution:
a)
To calculate Incremental Profit (loss) from each product, we need to calculate the profit at split off point and the profit after further processing of product
Incremental Profit (Loss) = Profit from the product after further processing minus Profit from the product at split off point
Calculation of Incremental Profit
Product A
Product B
Product C
Profit after further processing (Note 1)
$23,250
$72,294
$37,456
Less: Profit at split off point (Note 2)
($26,250)
($45,294)
($33,456)
Incremental Profit/ (loss)
($3,000)
$27,000
$4,000
Note 1: Calculation of Profit after further processing of product
Product A
Product B
Product C
Total
Quarterly Output (in pounds)
17,000
22,000
5,000
Selling Price per pound after further processing
$5
$7
$16
Total Sales Value after further processing
$85,000
$154,000
$80,000
$319,000
Less: Processing Cost upto split off point (as calculated above)
($24,750)
($42,706)
($31,544)
($99,000)
Less: Additional Processing Cost for further processing
($37,000)
($39,000)
($11,000)
($87,000)
Profit after further processing
$23,250
$72,294
$37,456
$133,000
Note 2: Calculation of Profit at Split off Point
Product A
Product B
Product C
Total
Quarterly Output (in pounds)
17,000
22,000
5,000
Selling Price per pound at the split off point
$3
$4
$13
Total Sales Value at the split off point
$51,000
$88,000
$65,000
$204,000
Less: Processing Cost $99,000
(allocated on the basis of sales value at split off point in the ratio 51:88:65)
($24,750)
($42,706)
($31,544)
($99,000)
Profit at Split off point
$26,250
$45,294
$33,456
$105,000
b)
All the products A, B and C can be sold at split off point because all products are profitable product at split off point.
(If we consider further processing --- then product B and C should be processed further because they are profitable after further processing and Product A should not be processed further. Product A should be sold at split off point because Product A is profitable only at split off point. In general we should sold all the product at split off point because all are profitable.)
c)
Product B and Product C should be processed further since they will increase the profit of the company and they are profitable after further processing.
Calculation of Incremental Profit
Product A
Product B
Product C
Profit after further processing (Note 1)
$23,250
$72,294
$37,456
Less: Profit at split off point (Note 2)
($26,250)
($45,294)
($33,456)
Incremental Profit/ (loss)
($3,000)
$27,000
$4,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.