Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $97,000 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 $ 5 per pound 10,000 pounds B $ 6 per pound 15,000 pounds C $ 16 per gallon 4,000 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 $ 45,000 $ 8
per pound B $ 36,000 $ 11 per pound C $ 14,000 $ 20 per gallon a. Compute the incremental profit (loss) for each product.
b. Which product or products should be sold at the split-off point?
c. Which product or products should be processed further?
| Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $97,000 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 | $ | 5 | per pound | 10,000 | pounds | |
| B | $ | 6 | per pound | 15,000 | pounds | |
| C | $ | 16 | per gallon | 4,000 | 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 | $ | 45,000 | $ | 8 | per pound | |||||||
| B | $ | 36,000 | $ | 11 | per pound | |||||||
| C | $ | 14,000 | $ | 20 | per gallon | |||||||
| ||||||||||||
Related questions
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $335,000 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 | $ | 17.00 | per pound | 12,400 | pounds | |
| B | $ | 11.00 | per pound | 19,400 | pounds | |
| C | $ | 23.00 | per gallon | 3,600 | 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 | $ | 63,720 | $ | 21.80 | per pound |
| B | $ | 91,120 | $ | 16.80 | per pound |
| C | $ | 37,360 | $ | 30.80 | 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?
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $305,000 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 | $ | 11.00 | per pound | 11,200 | pounds | |
| B | $ | 5.00 | per pound | 17,600 | pounds | |
| C | $ | 17.00 | per gallon | 2,400 | 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 | $ | 50,340 | $ | 15.20 | per pound |
| B | $ | 71,170 | $ | 10.20 | per pound |
| C | $ | 25,600 | $ | 24.20 | 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?
