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 $93,000 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: Product Selling Price Quarterly Output A $ 3 per pound 16,000 pounds B $ 4 per pound 21,000 pounds C $ 8 per gallon 8,000 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: Product Additional Processing Costs Selling Price A $ 44,000 $ 5 per pound B $ 35,000 $ 8 per pound C $ 22,000 $ 11 per gallon Required: a. Compute the incremental profit (loss) for each product.

Answer 1

The incremental profit (loss) for each product is:

A = $-12,000

B = $49,000

C = $41,000

Step-by-step explanation:

Split off Point: The split off point is that point in which joint products treated separately and sell them as a unique product.

Incremental Cash flow: The incremental cash flow is that cash flow which show the difference between the split off sales and normal sales.

Here, incremental means that if split off sales is greater than normal sales than firm is earning profit else the firm will suffer loss.

Steps to compute the incremental cash flows for each products:

Step 1: First write Additional selling price of all three products

Step 2: Than write the Split off selling price of all three products

Step 3: Now take the difference of selling price

Step 4: After that, multiply step 3 with split off sales

Step 5: Than write the additional sales

Step 6: Compare the two sales and analyse whether firm earns profits or suffer a loss, and finally the increment cash flows come.

The calculation is done in attachment sheet.

Thus, the incremental profit (loss) for each product is:

A = $-12,000

B = $49,000

C = $41,000