Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $355,000 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 |
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| A | $ | 21.00 | per pound | 13,200 | pounds | |
| B | $ | 15.00 | per pound | 20,600 | pounds | |
| C | $ | 27.00 | per gallon | 4,400 | 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 | $ | 73,440 | $ | 26.20 | per pound |
| B | $ | 105,620 | $ | 21.20 | per pound |
| C | $ | 46,000 | $ | 35.20 | 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?
1) Incremental analysis
| Product A | Product B | Product C | |
| Selling price after further processing | 26.20 | 21.20 | 35.20 |
| Selling price at split off | 21 | 15 | 27 |
| Incremental price | 5.20 | 6.20 | 8.20 |
| Quantity | 13200 | 20600 | 4400 |
| Incremental revenue | 68640 | 127720 | 36080 |
| Incremental Cost | -73440 | -105620 | -46000 |
| Financial advantage (disadvantage) | -4800 | 22100 | -9920 |
Analysis
| Product A | Product B | Product C | |
| Sell at split off poind | Yes | No | Yes |
| Process further | No | Yes | No |
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