Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $385,000 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 $ 27.00 per pound 14,400 pounds B $ 21.00 per pound 22,400 pounds C $ 33.00 per gallon 5,600 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 $ 89,220 $ 32.80 per pound B $ 129,170 $ 27.80 per pound C $ 60,160 $ 41.80 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?
| Statement showing Evaluation of Financial Advantage or Disadvantage from Further Processing - Dorsey Company | |||
| Product A | Product B | Product C | |
| Selling Price After Further Processing | $32.80 | $27.80 | $41.80 |
| Less: Selling Price At The Split-Off Point | $27.00 | $21.00 | $33.00 |
| Incremental Revenue Per Pound (a) | $5.80 | $6.80 | $8.80 |
| Quaterly Output (B) | 14400 | 22400 | 5600 |
| Incremental Revenue (c=aXb) | $83,520.00 | $152,320.00 | $49,280.00 |
| Less Additional Processing Costs | $89,220.00 | $129,170.00 | $60,160.00 |
| Financial Advantage(Disadvantage) | -$5,700.00 | $23,150.00 | -$10,880.00 |
Product - B should be sold after further Procesing and Product A & C should be sold at split off point
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