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 $395,000 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 $ 29.00 per pound 14,800 pounds B $ 23.00 per pound 23,000 pounds C $ 35.00 per gallon 6,000 gallons

Explanation / Answer

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 A and product C should be sold at split off point and product B should be sold after further processing.

A B C Sale revenue per unit after further processing 35 30 44 Sale revenue per unit at split off point (29) (23) (35) Incremental revenue per unit 6 7 9 Pounds/gallon 14800 23000 6000 Incremental revenue 88800 161000 54000 Less: Additional cost (94800) (137500) (65200) Incremental profit (loss) (6000) 23500 (11200)

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