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 $91,000 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 $ 13 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 $ 42,000 $

6

per pound

B $ 38,000 $ 8 per pound

C $ 17,000 $ 17 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

		Dorsey Company
	Incremental Revenue
		A	B	C
a)	Selling Price after further processing	$              6.00	$                              8.00	$          17.00
	Selling Price at Split off Point	$              4.00	$                              5.00	$          13.00
	Additional Selling Price=(A)	$              2.00	$                              3.00	$             4.00
	Quartely Output=(B)	14000	19000	5000
	Total additional selling Price=(A)*(B)	$   28,000.00	$                   57,000.00	$ 20,000.00
	Less: Additional Processing Cost	$   42,000.00	$                   38,000.00	$ 17,000.00
	Incremental Revenue	$ (14,000.00)	$                   19,000.00	$    3,000.00
b)	The Company Should sold product A at split off point.
c)	The Company should sold product B and C after split off point .
	Working
	Joint cost at Split off Point	Sales	Cost
	Product A	14000	91000*(14000/38000)	$ 33,526.32
	Product B	19000	91000*(19000/38000)	$ 45,500.00
	Product C	5000	91000*(5000/38000)	$ 11,973.68
	Total	38000		$ 91,000.00
	Product	A	B	C
	Sales Units at split off point	14000	19000	5000
	Selling Price per unit	$              4.00	$                              5.00	$          13.00
	Total Selling Price	$   56,000.00	$                   95,000.00	$ 65,000.00
	Cost at Split off Point	$   33,526.32	$                   45,500.00	$ 11,973.68
	Revenue at Split off Point	$   22,473.68	$                   49,500.00	$ 53,026.32