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 $390,000 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 Quarterly Output Product Selling Price $ 28.00 per pound14,600 pounds 22.00 per pound 22,700 pounds 34.00 per gallon 5,800 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: Additional Processing Costs $ 91,990 $133,30.5 $ 62,660 Selling Price $33.90 per pound $28.90 per pound 42.90 per gallon Product 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?

Explanation / Answer

SOLUTION

(A)

(B)

Therefore, only product B should be processed further.

Product A Product B Product C Sales value after further processing (14,600*$33.90), (22,700*$28.90), (5,800*$42.90) 494,940 656,030 248,820 Costs of further processing 91,990 133,305 62,660 Benefits of further processing 402,950 522,725 186,160 Less: Sales value at split-off point (14,600*$28.00), (22,700*$22.00), (5,800*$34.00) 408,800 499,400 197,200 Net advantage / (Disadvantage) (5,850) 23,325 (11,040)

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