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 $365,000 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? (Enter "disadvantages" as a negative value.)

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 $ 23.00 per pound 13,600 pounds B $ 17.00 per pound 21,200 pounds C $ 29.00 per gallon 4,800 gallons

Explanation / Answer

A B C New Selling Price $28.40 $23.40 $37.40 Existing Selling price $23.00 $17.00 $29.00 Increase in selling price $5.40 $6.40 $8.40 Units 13600 21200 4800 Incremental revenue $73,440.00 $135,680.00 $40,320.00 Incremental cost $78,540.00 $113,230.00 $50,560.00 Answer 1 Advantage (Disadvantage) ($5,100.00) $22,450.00 ($10,240.00) Answer 2 Sell or further process Sell Process Sell

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