Dorsey Company manufactures three products from a common input in a joint proces
ID: 2534979 • 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 $305,000 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 ProductSelling Price $ 11.00 per pound B 5.00 per pound Quarterl Output 11,200 pounds 17,600 pounds C17.00 per gallon 2,400 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: Selling Price Additional Product Processing Costs $50,340 $71,170 $25,600 $15.20 per pound $10.20 per pound $24.20 per gallon 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?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
15.20
10.20
24.20
Selling price at the split-off point
11.00
5.00
17.00
Incremental revenue per pound or gallon
4.20
5.20
7.20
Total quarterly output in pounds or gallons
11,200.00
17,600.00
2,400.00
Total incremental revenue
47,040.00
91,520.00
17,280.00
Total incremental processing costs
50,340.00
71,170.00
25,600.00
Total incremental profit or loss
(3,300.00)
20,350.00
(8,320.00)
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
15.20
10.20
24.20
Selling price at the split-off point
11.00
5.00
17.00
Incremental revenue per pound or gallon
4.20
5.20
7.20
Total quarterly output in pounds or gallons
11,200.00
17,600.00
2,400.00
Total incremental revenue
47,040.00
91,520.00
17,280.00
Total incremental processing costs
50,340.00
71,170.00
25,600.00
Total incremental profit or loss
(3,300.00)
20,350.00
(8,320.00)
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