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 $330,000 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 Quarterly Output Pro Selling Price A $16.00 per pound 12,200 pounds B $10.00 per pound 19,100 pounds C $22.00 per gallon 3,400 gallons ces 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 Costs $61,390 $87,645 $35,300 Selling Price 20.70 per pound $15.70 per pound $29.70 per gallon roduc 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

Incremental analysis :

Analysis :

Product A Product B Product C Sale price after further processing 20.70 15.70 29.70 Sale price at split off point 16 10 22 Incremental sale price 4.70 5.70 7.70 Quantity 12200 19100 3400 Incremental sales revenue 57340 108870 26180 Less: Incremental cost -61390 -87645 -35300 Incremental profit (loss) -4050 21225 -9120

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