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 $96,000 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:

6

  

Compute the incremental profit (loss) for each product.

Product A Product B Product C

Selling price after further processing

Selling price at the split-off point

Incremental revenue per pound or gallon

Total quarterly output in pounds or gallons

Total incremental revenue

Total incremental processing costs

Total incremental profit or loss

Which product or products should be sold at the split-off point?

Which product or products should be processed further?

Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $96,000 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:

Explanation / Answer

A.

B.

Product A should sold at split off point

C.

Products B and C should be processed further

A B C Selling Price after further processing                   6                   8                 14 Selling Price at the split off point                   4                   5                 10 Incremental Revenue per pound or gallon                   2                   3                   4 Total quarterly output in pounds or gallons        15,000        20,000           6,000 Total Incremental Revenue        30,000        60,000        24,000 Total incremental processing costs        39,000        40,000        11,000 Total incremental profit or loss         -9,000        20,000        13,000

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