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 $99,000 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.

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.)

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 Selling Price Quarterly
Output A $ 4 per pound 13,000 pounds B $ 5 per pound 18,000 pounds C $ 13 per gallon 5,000 gallons

Explanation / Answer

Solution:

Product A should be sold at split off point.

Product B and C should be processed further.

Statement of Incremental Profit or loss A B C Imcremental Revenue ( $ 6 - $ 4 ) *13,000 ( $ 9 - $ 5 ) * 18,000 ( $ 17 - $ 13) * 5,000 26,000 72,000 20,000 Less: Additional processing cost 35,000 35,000 1,000 Incremental Profit - 9,000 37,000 9,000

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