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 $345,000 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 $ 19.00 per pound $ 13.00 per pound $ 25.00 per gallon Quarterly Output 12,800 pounds 20,000 pounds 4,000 gallons C 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: Additional Product Processing Costs $68,500 $98,250 $41,600 Selling Price $24.00 per pound $19.00 per pound $33.00 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.)

Answer 1

1) Incremental analysis

	A	B	C
Selling price after further processing	24	19	33
Selling price at split off	19	13	25
Incremental price	5	6	8
Quantity	12800	20000	4000
Incremental revenue	64000	120000	32000
Incremental cost	-68500	-98250	-41600
Financial advantage (disadvantage)	-4500	21750	-9600

Analysis

	A	B	C
Sell at split off	Yes	No	Yes
Process further	No	Yes	No