Dorsey Company manufactures three products from a common input in a joint proces
ID: 3198134 • Letter: D
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 $310,000 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?
Financial advantage (disadvantage) of further processing:
Product A- ?
Product B- ?
Product C- ?
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 QuarterlyOutput A $ 12.00 per pound 11,400 pounds B $ 6.00 per pound 17,900 pounds C $ 18.00 per gallon 2,600 gallons
Explanation / Answer
Solution:
1. At split off point:
Total Revenue of item A = 12 * 11400 = $ 136800
Total revenue of item B =6 * 17900 = $ 107400
Total Revenue of item C=18 * 2600 = $ 46800
After processing:
Revenue of A = 16.3* 11400 - 52470 = $ 133350
Revenue of B=11.3*17900 - 74345= $ 127925
Revenue of C=25.3*2600- 27460 = $ 38320
Advantage/Disadvantage:
Product A = 133350 - 136800 = -$3450 (Disadvantage)
Product B=127925-107400 = $ 20525 (Advantage)
Product C=38320 - 46800 = - $8480(Disadvantage)
2. A and C should be sold at split off point while B should be processed further.
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