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 $350,000 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 ProductSelling Price A S 16 per pound B $ 8 per pound r gallon Quarterly Output 15,000 pounds 20,000 pounds 4,000 gallons C $ 25 per 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 Additional Processing Selling Price S20 per pound $13 per pound Product Costs $63,000 $80,000 $36,000 S32 allon Required 1. What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point? 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?

Explanation / Answer

1) Calculate financial advantage (disadvantage) of further processing :

2) Product A and product C should be sold at split off point.

Product B should be sold after further processing

Product A Product B Product C Sale price after further processing 20 13 32 Sale price at split off point 16 8 25 Incremental price 4 5 7 Quantity 15000 20000 4000 Incremental revenue 60000 100000 28000 Incremental cost (63000) (80000) (36000) Incremental profit and loss (3000) 20000 (8000)

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