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 $355,000 per quarter. For financial reporting purposes, 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:

1. What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point?

2. Based on your analysis in requirement 1, which product or products should be sold at the split-off point and which product or products should be processed further?

Product Selling Price Quarterly
Output A $ 21.00 per pound 13,200 pounds B $ 15.00 per pound 20,600 pounds C $ 27.00 per gallon 4,400 gallons

Explanation / Answer

1) Calculate financial advantage (disadvantage) of further processing :

2) Product A and product C should be sold at split off point.

Product B should be sold after further processing

Product A Product B Product C Sale price after further processing 26.20 21.20 35.20 Sale price at split off point 21 15 27 Incremental price 5.20 6.20 8.20 Quantity 13200 20600 4400 Incremental revenue 68640 127720 36080 Incremental cost (73440) (105620) (46000) Incremental profit and loss (4800) 22100 (9920)

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