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 $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 output at the split-off point are as follows:

Product	Selling Price			Quarterly Output
A	$	4	per pound	14,000	pounds
B	$	5	per pound	19,000	pounds
C	$	12	per gallon	5,000	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	$	43,000	$	6	per pound
B	$	40,000	$	8	per pound
C	$	16,250	$	16	per gallon

Required:

a. Compute the incremental profit (loss) for each product.

b. Which product or products should be sold at the split-off point? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

	Product A
	Product B
	Product C

c. Which product or products should be processed further? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

	Product A
	Product B
	Product C

Answer 1

(a)

Product	Quarterly Output	Selling Price	Total Revenue (A)	Post Processing SP	Total Revenue (Post Processing)	Additional Cost	Net Revenue (B)	Incremental profit (loss) (B-A)
A	14,000	$                   4	$             56,000	$                                6	$                   84,000	$               43,000	$          41,000	$                                (15,000)
B	19,000	$                   5	$             95,000	$                                8	$                152,000	$               40,000	$        112,000	$                                  17,000
C	5,000	$                 12	$             60,000	$                              16	$                   80,000	$               16,250	$          63,750	$                                    3,750

b. Product A

c. Product B and Product C