Dorsey Company manufactures three products from a common input in a joint proces
ID: 2477440 • 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 $96,000 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:
6
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
Which product or products should be sold at the split-off point?
Which product or products should be processed further?
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $96,000 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
Ans a Product A Product B Product C Selling price after further processing $6 $8 $14 Selling price at the split-off point 4 5 10 Incremental revenue per pound or gallon $2 $3 $4 Total quarterly output in pounds or gallons 15000 20000 6000 Total incremental revenue $30,000 $60,000 $24,000 Total incremental processing costs 39000 40000 11000 Total incremental profit or loss ($9,000) $20,000 $13,000 Ans b Product A should be sold at spilt off point as in further processing it incurrs loss Ans c Product B, C should be further processed as there is incremental profit
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