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 $95,000 per quarter. 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:

5

Compute the incremental profit (loss) for each product.

     

Which product or products should be sold at the split-off point?

Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $95,000 per quarter. 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:

Explanation / Answer

a.

Product A should be sold at split off point.

Product A Product B Product C Selling Price after further processing $              5 $             7 $           15 Selling Price at the split off point $              3 $             4 $           12 Incremental Revenue per pound or gallon $              2 $             3 $             3 Total quarterly output in pounds or gallons       18,000       23,000         5,000 Total Incremental Revenue $   36,000 $   69,000 $   15,000 Total incremental processing costs $   40,000 $   40,000 $   11,250 Total incremental profit or loss $   (4,000) $   29,000 $     3,750

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