Question

Question 3 – Sell or Process Further
Jimbob Co. manufactures three products from a common input in a joint processing operation. All units of all three products can be sold at the split-off point. Alternatively all three products can be further processed and all units after further processing can be sold. Information about the products is as follows:


Product   1001   1002   1003
Allocated costs at split-off   $50,000   $90,000   $60,000
Sales values at split-off   $100,000   $180,000   $120,000
Further processing costs   $70,000   $80,000   $24,000
Sales values after furthering processing   $160,000   $300,000   $150,000

Required:

Which products should be sold at the split-off point and which should be further processed and sold after further processing?

Answer 1

Solution:

Financial advantage (disadvantage) to determine which product to be sold at split off and which is to be further processed - Dorsey Company
Particulars	Product 1001	Product 1002	Product 1003
Sale value after further processing	$160,000.00	$300,000.00	$150,000.00
Sale value at split off point	$100,000.00	$180,000.00	$120,000.00
Total Incremental Revenue	$60,000.00	$120,000.00	$30,000.00
Total incremental processing cost	$70,000.00	$80,000.00	$24,000.00
Financial advantage (disadvantage) of further processing	-$10,000.00	$40,000.00	$6,000.00
Decision	Sell at Split off	Further Process	Further Process