Dorsey Company manufactures three products from a common input in a joint proces
ID: 2534218 • 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 $395,000 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 QuarterlyOutput A $ 29.00 per pound 14,800 pounds B $ 23.00 per pound 23,000 pounds C $ 35.00 per gallon 6,000 gallons
Explanation / Answer
1. What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point?
Product A
Product B
Product C
Selling price after further processing
35.00
30.00
44.00
Selling price at the split-off point
29.00
23.00
35.00
Incremental revenue per pound or gallon
6.00
7.00
9.00
Total quarterly output in pounds or gallons
14800
23000
6000
Total incremental revenue
88,800.00
161,000.00
54,000.00
Total incremental processing costs
94,800.00
137,500.00
65,200.00
Total incremental profit or loss
(6,000.00)
23,500.00
(11,200.00)
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?
Products should be sold at the split-off point = Product A & Product C
Product should be processed further = Product B
Product A
Product B
Product C
Selling price after further processing
35.00
30.00
44.00
Selling price at the split-off point
29.00
23.00
35.00
Incremental revenue per pound or gallon
6.00
7.00
9.00
Total quarterly output in pounds or gallons
14800
23000
6000
Total incremental revenue
88,800.00
161,000.00
54,000.00
Total incremental processing costs
94,800.00
137,500.00
65,200.00
Total incremental profit or loss
(6,000.00)
23,500.00
(11,200.00)
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