Exercise 12-7 Sell or Process Further LO12-7] Dorsey Company manufactures three

Question

Exercise 12-7 Sell or Process Further LO12-7] 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: Product Selling Price Output 12,000 pounds B S per 17,000 pounds 5,000 gallons pound C S12 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 Product Costs Selling Price 7per pound B 40,000s10 per 16 per pound 17,500 Required: a. Compute the incremental profit (loss) for each product. Product A Selling price after further Selling price at the split-off point Incremental revenue per pound Total quarterly output in pounds Total incremental revenue Total incremental processing costs

Explanation / Answer

a) Compute incremental profit :

b) Product A should be sold at split off point

c) Product B and product C should be sold after further processing

Product A Product B Product C Selling price after further processing 7 10 16 Selling price at split off point 4 5 12 Incremental revenue output in pounds and gallons 3 5 4 Total quaterly pounds and gallon 12000 17000 5000 Total incremental revenue 36000 85000 20000 Total incremental processing cost 43000 40000 17500 Total incremental profit or loss -7000 45000 2500

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