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 $335,000 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:

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:

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?

Product Selling Price Quarterly
Output A $ 17.00 per pound 12,400 pounds B $ 11.00 per pound 19,400 pounds C $ 23.00 per gallon 3,600 gallons

Explanation / Answer

1 A B C Selling price after further processing $21.80 $16.80 $30.80 Selling price at the split-off point $17.00 $11.00 $23.00 Incremental revenue per pound or gallon $4.80 $5.80 $7.80 Total quarterly output in pounds or gallons 12400 19400 3600 Total incremental revenue $59,520 $1,12,520 $28,080 Total incremental processing costs $63,720 $91,120 $37,360 Total incremental profit or loss -$4,200 $21,400 -$9,280 2 Therefore, only product B should be processed further

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