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 $315,000 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 $ 13.00 per pound 11,600 pounds B $ 7.00 per pound 18,200 pounds C $ 19.00 per gallon 2,800 gallons

Explanation / Answer

1) Incremental analysis :

2) Analaysis :

Project A Project B Project C Sale price after further processing 17.40 12.40 26.40 Sale price at split off point 13 7 19 Incremental sale price 4.40 5.40 7.40 Quantity 11600 18200 2800 Incremental sale revenue 51040 98280 20720 Less: Incremental cost -54640 -77580 -29360 Incremental profit (loss) -3600 20700 -8640

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