Question

Exercise 11-7 Sell or Process Further Decisions [LO11-7] Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $300,000 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: Product Selling Price Quarterly Output A $ 10.00 per pound 11,000 pounds B $ 4.00 per pound 17,300 pounds C $ 16.00 per gallon 2,200 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 $ 48,250 $ 14.10 per pound B $ 68,055 $ 9.10 per pound C $ 23,780 $ 23.10 per gallon Required: 1. What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point

Answer 1

Answer: See explanation

Step-by-step explanation:

The financial advantage (disadvantage) of further processing each of the three products beyond the split-off point is calculated below:

For product A:

Selling price after further processing = $14.10

Selling price at the split-off point = $10.00

Incremental revenue per pound = $4.10

Total quarterly output in pounds = 11000

Total incremental revenue = 45100

Total incremental processing costs = 48250

Financial (disadvantage) = (3150)

For product B:

Selling price after further processing = $9.10

Selling price at the split-off point = $4.00

Incremental revenue per pound = $5.10

Total quarterly output in pounds = 17300

Total incremental revenue = 88230

Total incremental processing costs = 68055

Financial advantage = 20175

For product C:

Selling price after further processing = $23.10

Selling price at the split-off point = $16.00

Incremental revenue per pound = $7.10

Total quarterly output in pounds = 2200

Total incremental revenue = 15620

Total incremental processing costs = 23780

Financial (disadvantage) = (8160)