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 $93,000 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:

Product Selling Price Quarterly Output

A $ 4 per pound 13,000 pounds

B $ 5 per pound 18,000 pounds

C $ 16 per gallon 4,000 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:

Product Additional Processing Costs Selling Price

A $ 36,000 $ 6 per pound

B $ 37,000 $ 9 per pound

C $ 10,000 $ 21 per gallon

Required: a. Compute the incremental profit (loss) for each product.

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. Compute the incremental profit (loss) for each product. A B C Selling price after further processing $6 $9 $21 Selling price at the spilit off point $4 $5 $16 Incremental revenue per pound or gallon $2 $4 $5 Total quarterly output in pounds or gallons 13,000 18,000 4,000 Total incremental revenue $26,000 $72,000 $20,000 Less: Incremenatal processing cost $36,000 $37,000 $10,000 Incremental profit or loss -$10,000 $35,000 $10,000 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 Since product A is having incremental loss, this should be sold at the split-off point 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 Since product B and C is having incremental profit, these should be further processed.

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