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 592,000 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 seling prices and total output at the split-off point are as follows: Product Selling Price 5 3 per pound 5 4 per pound S 9 per galon Output 20,000 pounds 25,000 pounds 7,000 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 ProductProcessing Costs S 38,000 S 36,000 S 9,000 Selling Price 5 4 per pound 5 6 per pound 5 12 per galon Required a. Compute the incremental profit (oss) for each product. Selling price after further processing Selling price at the split-off point Incremental revenue per pound or gallon Total quarterly output in pounds or gallons Total incremental revenue Total incremental processing costs Total incremental profit or loss

Explanation / Answer

Answer =A Product A Product B Product C Selling price after Further Processing $4 $6 12 Less: Selling price at the split point of time $3 $4 9 Increamental profit per ground or gallon $1 $2 $3 Total Quarterly output of Gallons 20000 25000 7000 Total Increamental Revenue $20,000 $50,000 $21,000 Less: Total increamental processing costs $38,000 $36,000 9000 Increamental Profit or Loss -$18,000 $14,000 $12,000 Answer =B Produt Sold at the split off point = Answer = Prouct A (because there is net loss of $ 18,000) Answer = C Prduct process Further is as below Answer = Product B & Prodcut C

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