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 $94,000 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 12,000 pounds 17,000 pounds 6,000 gallons Product Selling Price $ 4 per pound $ 5 per pound $ 10 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 Product Processing Costs Selling Price $ 41,000 $ 37,000 $ 16,000 $ 7 per pound $ 9 per pound $ 13 per gallon

Explanation / Answer

A B C

* Incremental revenue per pound or gallon = Selling Price after further processing - selling Price at the spilt-off point

*Total incremental revenue = Incremental revenue per pound or gallon * Total quarterly output in pounds or gallons

Selling Price after further processing 7 9 13 selling Price at the spilt-off point 4 5 10 Incremental revenue per pound or gallon 3 4 3 Total quarterly output in pounds or gallons 12000 17000 6000 Total incremental revenue 36000 68000 18000 Total incremental processing costs 41000 37000 16000 Total incremental profit or loss (5000) 31000 2000 Ans. B point A *Product A should be sold at the spilt off point . Ans. B point B and point C *Product B and Product C can be proceed further, but the incremental profit of A is greater than C , so it must be choosen first.

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