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 $100,000 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	12,000	pounds
B	$	6	per pound	17,000	pounds
C	$	10	per gallon	6,000	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	$	40,000	$	7	per pound
B	$	39,000	$	10	per pound
C	$	16,000	$	13	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

Answer a

	Product A	Product B	Product C
incremental profit (loss)	$    4,000	$ 29,000	$    2,000

Answer b

PRODUCT A

Answer c

PRODUCT B

PRODUCT C

Calculations:

Product A
Process further	Amount	Sale at split off point	Amount
Sales value after processing	$ 84,000	Sales value	$ 48,000
Less: Extra Cost	$ 40,000
Net benefit	$ 44,000	Net benefit	$ 48,000

Product B
Process further	Amount	Sale at split off point	Amount
Sales value after processing	$ 170,000	Sales value	$ 102,000
Less: Extra Cost	$   39,000
Net benefit	$ 131,000	Net benefit	$ 102,000

Product C
Process further	Amount	Sale at split off point	Amount
Sales value after processing	$ 78,000	Sales value	$ 60,000
Less: Extra Cost	$ 16,000
Net benefit	$ 62,000	Net benefit	$ 60,000

In case of any doubt, please comment.