PLEASE ANSWER ALL PARTS, PLEASE & THANK YOU! Dorsey Company manufactures three p
ID: 2479030 • Letter: P
Question
PLEASE ANSWER ALL PARTS, PLEASE & THANK YOU!
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total dollar93,000 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: Required: Compute the incremental profit (loss) for each product. Which product or products should be sold at the split-off point? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.) Product A Product B Product C Which product or products should be processed further? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.) Product A Product B Product CExplanation / Answer
Solution:
1) Computation of the incremental profit (loss) for each product.
Product A
Product B
Product C
Selling Price after further processing
$5
$8
$11
Selling Price at the split-off point
$3
$4
$9
Incremental Revenue per pound or gallon
$2
$4
$2
Total Quarterly output in pounds or gallon
16,000
21,000
7,000
Total Incremental Revenue
$32,000
$84,000
$14,000
Total Incremental Processing Cost
$39,000
$36,000
$12,000
Total Incremental Profit or loss
($7,000)
$48,000
$2,000
2)
All the products are profitable at split off point, hence all the products should be sold at split off point.
Product A ---- Select
Product B -- Select
Product C ---- Select
Note 1 ---- Calculation of Profit at split off point
Product A
Product B
Product C
Selling Price at the split-off point
$3
$4
$9
Total Quarterly output in pounds or gallon
16,000
21,000
7,000
Total Revenue at split off point
$48,000
$84,000
$63,000
Processing Cost at split off point (allocated on sales value basis)
$22,892
$40,062
$30,046
Total Incremental Profit or loss
$25,108
$43,938
$32,954
3)
From the computation of part 1.. It is clear that Product B and Product C are profitable after further processing. Product A is a loss making product after further processing.
Hence Product B and Product C should be selected.
Product A
Product B
Product C
Selling Price after further processing
$5
$8
$11
Selling Price at the split-off point
$3
$4
$9
Incremental Revenue per pound or gallon
$2
$4
$2
Total Quarterly output in pounds or gallon
16,000
21,000
7,000
Total Incremental Revenue
$32,000
$84,000
$14,000
Total Incremental Processing Cost
$39,000
$36,000
$12,000
Total Incremental Profit or loss
($7,000)
$48,000
$2,000
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