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 $330,000 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 peices and total output at the split-off point are as follows:

Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $330,000 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 A B Selling Price $ 16.00 per pound $ 10.00 per pound $ 22.00 per gallon Quarterly Output 12,200 pounds 19, 100 pounds 3,400 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 $61,390 $87,645 $35,300 Selling Price $20.70 per pound $15.70 per pound $29.70 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point? (Enter "disadvantages" as a negative value.) Product Product B Product C Financial advantage (disadvantage) of further processing

Answer 1

ANSWER

As per the given question,

Calculate financial advantage or disadvantage :

	Product A	Product B	Product C
Sale price after further processing	20.70	15.70	29.70
Sale price at split off point	16	10	22
Incremental sale price	4.70	5.70	7.70
Quantity	12200	19100	3400
Incremental sales revenue	57340	108870	26180
Less: Incremental cost	61390	87645	35300
Incremental profit (loss)	-4050	21225	-9120

Analysis :

	Product A	Product B	Product C
Sell at split off point	Yes	No	Yes
Sell after further processing	No	Yes	No

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