Question
In: Finance
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 $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?
Solutions
Expert Solution
| 1. | ||||||
| Calculation of financial advantage (disadvantage) of further processing | ||||||
| Product A | Product B | Product C | ||||
| Selling price after processing | $20.70 | $15.70 | $29.70 | |||
| Selling price at split off point | $16.00 | $10.00 | $22.00 | |||
| Incremental selling price | $4.70 | $5.70 | $7.70 | |||
| Number of units sold | $12,200 | $19,100 | $3,400 | |||
| Incremental sale revenue | $57,340 | $108,870 | $26,180 | |||
| Less: Additional processing costs | -$61,390 | -$87,645 | -$35,300 | |||
| Incremental profit (loss) | -$4,050 | $21,225 | -$9,120 | |||
| The financial disadvantage of further processing product A and product C is $4,050 and $9,120 respectively. | ||||||
| The financial advantage of further processing product B is $21,225 | ||||||
| The joint costs is not considered as the joint cost would remain same under both the alternatives and therefore not relevant costs. | ||||||
| 2. | ||||||
| Company should process product B further as this would increase the profit of the company. | ||||||
| Company should sell product A and C at split off point as processing further would reduce the profit of the company. | ||||||
jeff jeffy answered 1 year agoRelated Solutions
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 $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.
Unit selling prices and total output at the split-off point are as
follows: Product Selling Price Quarterly Output A $ 20.00 per pound
13,000 pounds B $ 14.00 per...
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 $335,000 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
$
17.00
per pound
12,400
pounds
B
$
11.00
per...
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 $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
follows:
Product
Selling Price
Quarterly
Output
A
$
26.00
per pound
14,200
pounds
B
$
20.00
per...
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 $97,000 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...
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 $320,000 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
$
14.00
per pound
11,800
pounds
B
$
8.00
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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 $365,000 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
$
23.00
per pound
13,600
pounds
B
$
17.00
per...
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 $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.
Unit selling prices and total output at the split-off point are as
follows:
Product
Selling Price
Quarterly
Output
A
$
16
per pound
15,000
pounds
B
$
8
per...
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 $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
follows:
Product
Selling Price
Quarterly
Output
A
$
26.00
per pound
14,200
pounds
B
$
20.00
per...
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 $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...
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 $345,000 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
$
19.00
per pound
12,800
pounds
B
$
13.00
per...
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