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 $355,000 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 с Selling Price $ 21.00 per pound $ 15.00 per pound $ 27.00 per gallon Quarterly Output 13,200 pounds 20,600 pounds 4,400 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. Additional Product Processing Costs A $ 73,440 B $105,620 с $ 46,000 Selling Price $26.20 per pound $21.20 per pound $35.20 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 productor 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 A Product B Product C Financial advantage (disadvantage) of further processing Required 2 >

Answer 1

In the given case, the total cost and the selling price with units are given upto the split off point, the details of the sales at split off point will be as follows:.

	A	B	C	Total
Selling price before processing	21	15	27
output	13200	20600	4400	38200
Sales before processing	277200	309000	118800	705000
Less: cost				355000
profit				350000

Now if the further processing is made the sales amount and the additional cost will be as follows:

	A	B	C	Total
Selling price after processing	26.2	21.2	35.2
Sales after processing	345840	436720	154880	937440
Additional cost	73440	105620	46000	225060

Based on the above information the analysis and the details of financial advantage/ disadvantage of processing will be as follows:

	A	B	C
Sales before processing (A)	277200	309000	118800
Sales after processing (B)	345840	436720	154880
Additional sales ( B-A)	68640	127720	36080
Additional cost	73440	105620	46000
Financial advantage (disadvantage) of further processing	-4800	22100	-9920

Thus

	A	B	C
Financial advantage (disadvantage) of further processing	-4800	22100	-9920

B ) Based on the financial advantage and disadvantages analysis above the product B should be processed further.

	Product A	Product B	Product C
Sell at Split off Point?	Yes	No	Yes
Process Further ?	No	yes	No

Feel free to comment doubts if any..