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 $92,000 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 Quarterly Output 11,000 pounds 16,000 pounds 6,000 gallons Product Selling Price $ 5 per pound $ 6 per pound $ 11 per gallon 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 $ 40,000 $ 40,000 $ 9,750 Product Selling Price $ 7 per pound $ 10 per pound $ 13 per gallon Required a. Compute the incremental profit (loss) for each product. Product A Product B Product C Selling price after further processing Selling price at the split-off point Incremental revenue per pound or gallon lotal quarterly output in pounds or gallonsS Total incremental revenue Total incremental processing costs Total incremental profit or loss

Explanation / Answer

a) Incremental analysis :

2) Product A should be sold at split off point

3) Product B and Product C should be sold after further processing

Product A Product B Product C selling price after further processing 7 10 13 Selling price at split off point 5 6 11 Incremental revenue per pound and gallon 2 4 2 Total quarterly output in pounds and gallong 11000 16000 6000 Total incremental revenue 22000 64000 12000 Total incremental processing cost -40000 -40000 -9750 Total incremental profit and loss -18000 24000 2250

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