Joint Product Costs and Sell or Process Further Decisions (Please show work, tha
ID: 2576029 • Letter: J
Question
Joint Product Costs and Sell or Process Further Decisions (Please show work, thank you!)
4 Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $380,000 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 Product Selling Price s 26.00 per pound 14,200 pounds B 20.00 per pound 22,100 pounds per 5,400 gallons 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 S 86,490 $125, 095 S 57,700 Selling Price 31.70 per pound S26.70 per pound 40.70 per gallon Product 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
1.
Incremental selling price of product A = 31.7 - 26 = 5.7
Incremental sales revenue of product A = 5.7 * 14,200 = 80,940
Additional processing costs of product A = 86,490
Loss on additional processing of product A = 86,490 - 80,940 = 5,550
Incremental selling price of product B = 26.7 - 20 = 6.7
Incremental sales revenue of product B = 6.7 * 22,100 = 148,070
Additional processing costs of product B = 125,095
Profit on additional processing of product B = 148,070 - 125,095 = 22,975
Incremental selling price of product C = 40.70 - 32 = 8.7
Incremental sales revenue of product C = 8.7 * 5,400 = 46,980
Additional processing costs of product C = 57,700
Loss on additional processing of product C = 57,700 - 46,980 = 10,720
Financial advantage of further processing each of the three products beyond the split off point = Loss of 5,550 + Profit of 22,975 + Loss of 10,720
= 6,705
Financial advantage = 6,705.
----------------------------------------------------------------------------------------------------------------------
2.
Based on the analysis in requirment 1
Product A and Product C should be sold at the split off point as the incremental sales revenue is lesser than the additional processing cost and results in loss.
Product B should be processed further as the incremental sales revenue is greater than the additional processing cost and results in profit.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.