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 $395,000 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 | $ | 29.00 | per pound | 14,800 | pounds | |
| B | $ | 23.00 | per pound | 23,000 | pounds | |
| C | $ | 35.00 | 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 | $ | 94,800 | $ | 35.00 | per pound |
| B | $ | 137,500 | $ | 30.00 | per pound |
| C | $ | 65,200 | $ | 44.00 | 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
1. What is the 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 |
35.00 |
30.00 |
44.00 |
|
Selling price at the split-off point |
29.00 |
23.00 |
35.00 |
|
Incremental revenue per pound or gallon |
6.00 |
7.00 |
9.00 |
|
Total quarterly output in pounds or gallons |
14800 |
23000 |
6000 |
|
Total incremental revenue |
88,800.00 |
161,000.00 |
54,000.00 |
|
Total incremental processing costs |
94,800.00 |
137,500.00 |
65,200.00 |
|
Total incremental profit or loss |
(6,000.00) |
23,500.00 |
(11,200.00) |
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?
Products should be sold at the split-off point = Product A & Product C
Product should be processed further = Product B
ekkarill92 answered 1 year agoRelated Solutions
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
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purposes, the company allocates these costs to the joint products
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Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
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purposes, the company allocates these costs to the joint products
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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 $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.
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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 $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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Product
Selling Price
Quarterly
Output
A
$
26.00
per pound
14,200
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$
20.00
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purposes, the company allocates these costs to the joint products
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Selling Price
Quarterly
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