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 $94,000 per quarter. 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 19,000 pounds 24,000 pounds 7,000 gallons Product Selling Price $ 3 per pound $ 4 per pound $ 9 per gallon 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 $ 42,000 $ 38,000 $ 18,500 Selling Price $ 4 per pound $ 6 per pound $12 per gallon Product Required a. Compute the incremental profit (loss) for each product Product A Product B Product C Selling price after further processing Selling price at the split-off point Incremental revenue per pound or gallon lotal quarterly output in pounds or gallons Total incremental revenue Total incremental processing costs Total incremental profit or loss

Explanation / Answer

a Product A Product B Product C Selling price after further processing 4 6 12 Selling price at the split-off point 3 4 9 Incremental revenue per pound or gallon 1 2 3 Total quarterly output in pounds or gallons 19000 24000 7000 Total incremental revenue 19000 48000 21000 Total incremental processing costs 42000 38000 18500 Total incremental profit or loss -23000 10000 2500 b Product A should be sold at the split-off point c Product B and Product C should be processed further

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