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 $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 pound 21,200 pounds C $ 29.00 per gallon 4,800 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 $ 78,540 $ 28.40 per pound B $ 113,230 $ 23.40 per pound C $ 50,560 $ 37.40 per gallon

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

1
	Product A	Product B	Product C
Selling price after further processing	28.40	23.40	37.40
Less: Selling price at the split-off point	23.00	17.00	29.00
Incremental revenue per pound or gallon	5.40	6.40	8.40
X Total quarterly output in pounds or gallons	13600	21200	4800
Total incremental revenue	73440	135680	40320
Less: Total incremental processing costs	78540	113230	50560
Financial advantage(disadvantage) of further processing	(5100)	22450	(10240)
2
	Product A	Product B	Product C
Sell at split off point	Yes		Yes
Process further		Yes
Product A and product C should be sold at the split-off point
Product B should be processed further