In: Accounting
Exercise 12-7 Sell or Process Further Decisions [LO12-7]
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 | |
B | $ | 10.00 | per pound | 19,100 | pounds | |
C | $ | 22.00 | per gallon | 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 |
Selling Price |
|||
A | $ | 61,390 | $ | 20.70 | per pound |
B | $ | 87,645 | $ | 15.70 | per pound |
C | $ | 35,300 | $ | 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?