Dorsey Company manufactures three products from a common input in a joint proces
ID: 2589206 • Letter: D
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 $395,000 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 QuarterlyOutput A $ 29.00 per pound 14,800 pounds B $ 23.00 per pound 23,000 pounds C $ 35.00 per gallon 6,000 gallons
Explanation / Answer
Solution:
1) Financial advantage and dis-advantage of further processing of each product
Product
A
B
C
Unit Selling Price after further processing (A)
$35
$30
$44
Unit Selling Price per pound at split off point (B)
$29
$23
$35
Incremental Revenue per pound (C=A-B)
$6
$7
$9
Quarterly output in pounds (D)
14800
23000
6000
Total Incremental Revenue after further processing (C*D)
$88,800
$161,000
$54,000
Less: Additional Processing Costs
$94,800
$137,500
$65,200
Incremental Income (loss) (Financial advantage and (disadvantage)
-$6,000
$23,500
-$11,200
2)
Product A and C should be sold at split off point without any further processing.
Product B should be sold after further processing beyond the split off point.
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Product
A
B
C
Unit Selling Price after further processing (A)
$35
$30
$44
Unit Selling Price per pound at split off point (B)
$29
$23
$35
Incremental Revenue per pound (C=A-B)
$6
$7
$9
Quarterly output in pounds (D)
14800
23000
6000
Total Incremental Revenue after further processing (C*D)
$88,800
$161,000
$54,000
Less: Additional Processing Costs
$94,800
$137,500
$65,200
Incremental Income (loss) (Financial advantage and (disadvantage)
-$6,000
$23,500
-$11,200
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