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

SOLUTION

(1)

(2)

Therefore, only product B should be processed further.

Product A ($) Product B ($) Product C ($) Sales value after further processing
(11,600*$17.40),(18,200*$12.40), (2,800*$26.40) 201,840 225,680 73,920 Cost of further processing 54,640 77,580 29,360 Benefit of further processing 147,200 148,100 44,560 Less: Sales value at split off point (11,600*$13.00),(18,200*$7.00), (2,800*$19.00) (150,800) (127,400) (53,200) Net Advantage / (Disadvantage) (3,600) 20,700 (8,640)

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