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 $360,000 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 $ 22.00 per pound 13,400 pounds B $ 16.00 per pound 20,900 pounds C $ 28.00 per gallon 4,600 gallons

Explanation / Answer

Product A Product B Product C Selling price after further processing 27.3 22.3 36.3 Selling price at the split-off point 22 16 28 Incremental revenue per pound or gallon 5.3 6.3 8.3 Total quarterly output in pounds or gallons 13400 20900 4600 Total incremental revenue 71020 131670 38180 Total incremental processing costs 75970 109395 48260 Total incremental profit or loss -4950 22275 -10080 2 Produc A and C should be sold at the split-off point Only product B should be processed further.

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