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 $345,000 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 Product Selling Price 19.00 per pound 12,800 pounds B 13.00 per pound 20,000 pounds C $ 25.00 per gallon 4,000 gallons 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 $68,500 $98,250 $41,600 Selling Price $24.00 per pound $19.00 per pound 33.00 per gallon Product 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 24 19 33 Sale price at split off point 19 13 25 Incremental sale price 5 6 8 Quantity 12800 20000 4000 Incremental sales revenue 64000 120000 32000 Less: Additional cost -68500 -98250 -41600 Incremental profit (loss) -4500 21750 -9600

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