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


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