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 $339,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows: Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below: Compute the incremental profit (loss) for each product. (Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)

Explanation / Answer

Incremental profit/loss = increase in revenue - Additional processing costs Increase in revenue = (new sales price - old sales price)*number of units Product A: increase in revenue = (19-16)*13,500 = 40,500 40,500 - 64,000 = -23,500 incremental loss of -23,500 Product B: Increase in revenue = (14-8)*18,600 = 111,600 111,600 - 80,200 = 31,400 incremental profit of 31,400 product C: Increase in revenue = (31-26)*2500 = 12,500 12,500 - 36,500 = -24,000 incremental loss of -24,000

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