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 $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 pound		20,300	pounds
C	$	26.00	per gallon		4,200	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	$	70,950	$	25.10	per pound
B	$	101,905	$	20.10	per pound
C	$	43,780	$	34.10	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?

Answer 1

Solution 1:

Dorsey Company
Financial advantage (disadvantage) of further procesing beyond split off point
Particulars	Product A	Product B	Product C
Selling price after further processing	$25.10	$20.10	$34.10
Selling price at split off point	$20.00	$14.00	$26.00
Increment revenue per pound or gallon	$5.10	$6.10	$8.10
*Total quarterly output in pound or gallon	13000	20300	4200
Total Incremental Revenue	$66,300	$1,23,830	$34,020
Total incremental processing cost	$70,950	$1,01,905	$43,780
Financial advantage (disadvantage) of further processing	-$4,650	$21,925	-$9,760

Solution 2:

products to be sold at the split-off point = product A and Product C.

products to be processed further= Product B