Exercise 12-7 Sell or Process Further Decisions [LO12-7] Dorsey Company manufact

Question

Exercise 12-7 Sell or Process Further Decisions [LO12-7] Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $375,000 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: Quarterl output ProductSelling Price A 25.00 per pound 14,000 pounds 19.00 per pound 21,800 pounds 31.00 per gallon 5,200 gallons C 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 83, 800 $121,080 s 55,280 selling Price 30.60 per pound $25.60 per pound 39.60 per galion

Explanation / Answer

Product A Product B Product C Selling price after further processing 30.6 25.6 39.6 Selling price at the split-off point 25 19 31 Incremental revenue per pound or gallon 5.6 6.6 8.6 Total quarterly output in pounds or gallons 14000 21800 5200 Total incremental revenue 78400 143880 44720 Total incremental processing costs 83800 121080 55280 Financial advantage(disadvantage) -5400 22800 -10560 2 Product A Product B Product C Sell at split off point Yes No Yes Process further No Yes No

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