Dorsey Company manufactures three products from a common input in a joint proces
ID: 2533282 • 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 $300,000 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 $ 10.00 per pound 11,000 pounds B $ 4.00 per pound 17,300 pounds C $ 16.00 per gallon 2,200 gallons
Explanation / Answer
1. What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point?
Product A
Product B
Product C
Selling price after further processing
14.10
9.10
23.10
Selling price at the split-off point
10.00
4.00
16.00
Incremental revenue per pound
4.10
5.10
7.10
Total quarterly output in pounds
11,000.00
17,300.00
2,200.00
Total incremental revenue
45,100.00
88,230.00
15,620.00
Total incremental processing costs
48,250.00
68,055.00
23,780.00
Total incremental profit or loss
(3,150.00)
20,175.00
(8,160.00)
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?
Products should be sold at the split-off point = Product A & Product C
Products should be processed further = Product B
Product A
Product B
Product C
Selling price after further processing
14.10
9.10
23.10
Selling price at the split-off point
10.00
4.00
16.00
Incremental revenue per pound
4.10
5.10
7.10
Total quarterly output in pounds
11,000.00
17,300.00
2,200.00
Total incremental revenue
45,100.00
88,230.00
15,620.00
Total incremental processing costs
48,250.00
68,055.00
23,780.00
Total incremental profit or loss
(3,150.00)
20,175.00
(8,160.00)
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