Dorsey Company manufactures three products from a common input in a joint proces
ID: 2523136 • Letter: D
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:
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:
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?
Product Selling Price QuarterlyOutput A $ 19.00 per pound 12,800 pounds B $ 13.00 per pound 20,000 pounds C $ 25.00 per gallon 4,000 gallons
Explanation / Answer
Answer:
Joint processing costs up to the split-off point = $345,000 per quarter
This costs is to be allocated to the joint products on the basis of their relative sales value at the split-off point.
Sale vale at split off of Product A = $19
Sale vale at split off of Product B = $13
Sale vale at split off of Product C = $25
Therefore joint cost to be allocated to A = 345000 x 19/57 = $115,000
Joint cost to be allocated to B = 345000 x 13/57 = $78,684.21
Joint cost to be allocated to C = 345000 x 25/57 = $151,315.79
Gain, if sold at split off:
Product A = (12800x19) - 115000 = $128,200
Product B = (20000x13) - 78684.21 = $181,315.79
Product C = (4000x25) - 151315.79 = - $51,315.79
Gain, if further processed:
Product A = (12800x24) - 115000 - 68500 = $123,700
Product B = (20000x19) - 78684.21 - 98250 = $203,065.79
Product C = (4000x33) - 151315.79 - 41600 = - $60,915.79
Thus, only Product B would be of financial advantage (203,065.79-181,315.79=21,750) if further processed.
2. Product A and Product C should be sold at split off and Product B Should be further processed.
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