Question

Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...

Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $375,000 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 $ 25.00 per pound 14,000 pounds
B $ 19.00 per pound 21,800 pounds
C $ 31.00 per gallon 5,200 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 $ 83,800 $ 30.60 per pound
B $ 121,080 $ 25.60 per pound
C $ 55,280 $ 39.60 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?

Homework Answers

Answer #1

1) Differential analysis

Product A Product B Product C
Selling price after further processing 30.60 25.60 39.60
Selling price at split off point 25 19 31
Incremental selling price 5.60 6.60 8.60
Quantity 14000 21800 5200
Incremental revenue 78400 143880 44720
Additional processing -83800 -121080 -55280
Financial advantage (disadvantage) -5400 22800 -10560

analysis

Product A Product B Product C
Sale at split off point Yes No Yes
Sale after further processing No Yes No
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