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 599,000 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: Quarte Selling Price S 4 per pound S 5 per pound S 9 per gallon Product Output B. 17.000 pounds 7.000 gallons 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 Selling Price $ 7 per pound S 9 per pound s 12 per gallon rocessing Costs S 42,000 $ 36,000 S 18,250 Required Compute the incremental profit (loss) for each product luct AProduct B Product Seling price after further processing Selling price at the split-off point incremental revenue per pound or gallon Total quarterly output in pounds or gations Total incremental revenue Total incremental processing soste otal incremontal profit or

Explanation / Answer

Dear Student,

Ans a)

b) Product A should be sold off at split off point due to loss been incurred if further processing cost is incurred;

c) Product B & C can be processed further as there is incremental profit after incurring additional cost on further processing;

Regards,

Product A ($ per pound)/$ Product B ($ per pound) Product C ($ per gallon) Selling Price after further processing (A) 7 9 12 Less :Selling Price at Split off point (B) -4 -5 -9 Incremental Revenue per pound/gallon (C ) = (A)-(B) 3 4 3 Total Quarrterly Outputs in pounds/gallons (D) 12,000 pounds 17,000 pounds 7,000 gallons Total Incremental Revenue (E ) = (C)* (D) 36,000 68,000 21,000 Total incremental processing costs (F) -42,000 -36,000 -18,250 Total incremental profit/loss (G) = (E )-(F) -6,000 32,000 2,750

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