Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $91,000 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 | $3 per pound | 19,000 pounds |
| B | $4 per pound | 24,000 pounds |
| C | $11 per gallon | 6,000 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 | $40,000 | $4 per pound |
| B | $38,000 | $7 per pound |
| C | $14,250 | $14 per gallon |
Required:
Compute the incremental profit (loss) for each product.
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Product A |
Product B |
Product C |
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Selling price after further processing |
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Selling price at the split-off point |
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Incremental revenue per pound or gallon |
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Total quarterly output in pounds or gallons |
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Total incremental revenue |
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Total incremental processing costs |
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Total incremental profit or loss |
Which product or products should be sold at the split-off point?
Product A
Product B
Product C
Which product or products should be processed further? (You may select more than one answer.
Product A
Product B
Product C
| Product - A | Product - B | Product - C | |
| Selling Price after further processing | 4 | 7 | 14 |
| (-) Selling price at the split off point | 3 | 4 | 11 |
| Incremental Revenue per pound or gallon | 1 | 3 | 3 |
| Output in pounds or gallons | 19000 | 24000 | 6000 |
| Total Incremental revenue | 19000 | 72000 | 18000 |
| Total incremental processing costs | 40000 | 38000 | 14250 |
| Total incremental profit or loss | -21000 | 34000 | 3750 |
Which product or products should be sold at the split-off point? - Product - A
Because, additional processing cost 40000 is more than incremental revenue of 19000.
Which product or products should be processed further?
Product - B and Product - C
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