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 $310,000 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: Quarterly Output Product Selling Price 12.00 per pound11,400 pounds $ 6.00 per pound 17,900 pounds 18.00 per gallon 2,600 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: Additional Processing Costs $52,470 $74,345 $27,460 Selling Price 16.30 per pound 11.30 per pound 25.30 per gallon Product 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 Product A Product B Product C Selling price after further processing 16.3 11.3 25.3 Selling price at the split-off point 12 6 18 Incremental revenue per pound or gallon 4.3 5.3 7.3 Total quarterly output in pounds or gallons 11400 17900 2600 Total incremental revenue 49020 94870 18980 Total incremental processing costs 52470 74345 27460 Total incremental profit or loss -3450 20525 -8480 2 Product A and Product C should be sold at the split-off point Product B should be processed further

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