Question
In: Accounting
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $315,000 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 | $ | 13.00 | per pound | 11,600 | pounds | |
| B | $ | 7.00 | per pound | 18,200 | pounds | |
| C | $ | 19.00 | per gallon | 2,800 | 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 | $ | 54,640 | $ | 17.40 | per pound |
| B | $ | 77,580 | $ | 12.40 | per pound |
| C | $ | 29,360 | $ | 26.40 | 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?
Solutions
Expert Solution
| a) | Financial Advantage ( Disadvantage ) of further processing each of the three products beyond the split off point :- | |||||
| Product A | Product B | Product C | ||||
| Selling price after further processing | $ | 17.40 | 12.40 | 26.40 | ||
| Selling Price at Split off point | $ | 13.00 | 7.00 | 19.00 | ||
| Incremental revenue per pound or gallon | $ | 4.40 | 5.40 | 7.40 | ||
| Total Quaterly output in pound or gallon | 11,600 | 18,200 | 2,800 | |||
| Total Incremental Revenue | $ | 51,040.00 | 98,280.00 | 20,720.00 | ||
| Total incremental processing cost | $ | 54,640.00 | 77,580.00 | 29,360.00 | ||
| Total incremental Profit ( Loss ) / Financial Advantage ( Disadvantage ) of further processing | $ | (3,600.00) | 20,700.00 | (8,640.00 ) | ||
| b) | Product A and Product C Should be sold at split off point since Incremental Revenue is less than Incremental Cost | |||||
| Product B shold be fulrther processed since Incremental Revenue is greater than the Incremental Cost. | ||||||
| Thank You ! | ||||||
ekkarill92 answered 2 hours agoRelated Solutions
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
Dorsey Company manufactures three products from a common input
in a joint processing operation. Joint processing costs up to the
split-off point total $350,000 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
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13,000 pounds B $ 14.00 per...
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
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.
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Product
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Output
A
$
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B
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Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
Dorsey Company manufactures three products from a common input
in a joint processing operation. Joint processing costs up to the
split-off point total $380,000 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
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Quarterly
Output
A
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pounds
B
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Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
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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
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Product
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A
$
4
per pound
14,000
pounds
B
$
5
per pound
19,000
pounds
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Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
Dorsey Company manufactures three products from a common input
in a joint processing operation. Joint processing costs up to the
split-off point total $320,000 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
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Product
Selling Price
Quarterly
Output
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split-off point total $365,000 per quarter. For financial reporting
purposes, the company allocates these costs to the joint products
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Product
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Output
A
$
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pounds
B
$
17.00
per...
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
Dorsey Company manufactures three products from a common input
in a joint processing operation. Joint processing costs up to the
split-off point total $350,000 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
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Product
Selling Price
Quarterly
Output
A
$
16
per pound
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$
8
per...
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
Dorsey Company manufactures three products from a common input
in a joint processing operation. Joint processing costs up to the
split-off point total $380,000 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
$
26.00
per pound
14,200
pounds
B
$
20.00
per...
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
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
Selling Price
Quarterly
Output
A
$
16.00
per pound
12,200
pounds
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$
10.00
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on the basis of their relative sales value at the split-off point.
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Quarterly
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per pound
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