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 $360,000 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	$	22.00	per pound		13,400	pounds
B	$	16.00	per pound		20,900	pounds
C	$	28.00	per gallon		4,600	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	$	75,970	$	27.30	per pound
B	$	109,395	$	22.30	per pound
C	$	48,260	$	36.30	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

Answer:-1)-The financial disadvantages of processing Product A beyond the split-off point is= $4950.

The financial advantages of processing Product B beyond the split-off point is=$22275.

The financial disadvantages of processing Product C beyond the split-off point is=$10080.

Explanation-

Doresy Company
Statement Of Financial advantage (disadvantage)
Product	Sale value at Split-Off-Point	Sale value of processed product	Incremental sale	Cost to further process	Incremental profit/(loss)
	$	$	$	$	$
	(a)	(b)	(c=b-a)	(d)	(e=c-d)
A	13400 pounds*$22 per pound =294800	13400 pounds*$27.30 per pound =365820	71020	75970	-4950
B	20900 pounds*$16 per pound = 334400	20900 pounds*$22.30 per pound = 466070	131670	109395	22275
C	4600 gallons*$28 per gallon = 128800	4600 gallons*$36.30 per gallon = 166980	38180	48260	-10080

2)-Product A & C should be sold at split-off point and product B should be processed further.