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 S310,000 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 11,400 pounds 17,900 pounds 2,600 gallons Product Selling Price $ 12.00 per pound $ 6.00 per pound $ 18.00 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: Selling Price Additional Product Processing Costs $52,470 $74,345 $27,460 $16.30 per pound $11.30 per pound $25.30 per gallon 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

A B C Selling price after further processing 16.3 11.3 25.3 Selling price at the split-off point 12 6 18 Incremental revenue per pound or gallon 4.3 5.3 7.3 Total quarterly output in pounds or gallons 11400 17900 2600 Total incremental revenue 49020 94870 18980 Total incremental processing costs 52470 74345 27460 Financial advantage (disadvantage) of further processing -3450 20525 -8480 b A B C Sell at split-off point? Yes No Yes Process further? No Yes No

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