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 $340,000 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 $18.00 per pound 12,600 pounds
B $12.00 per pound 19,700 pounds
C $24.00 per gallon 3,800 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 $66,090 $22.90 per pound
B $94,655 $17.90 per pound
C $39,460 $31.90 per gallon

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?

Answer 1

Find attached the answer to the question above

Answer 2

Step-by-step explanation:

1)

A B C

Selling price after further processing 22.9 17.9 31.9

Selling price at the split-off point 18 12 24

Incremental revenue per pound or gallon 4.9 5.9 7.9

Total quarterly output in pounds or gallons 12600 19700 3800

Total incremental revenue 61740 116230 30020

Total incremental processing costs 66090 94655 39460

Total incremental profit or loss -4350 21575 -9440

2)

Products A and C should be sold at the split-off point

Product B should be processed further