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 $93,000 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	$	5	per pound		11,000	pounds
B	$	6	per pound		16,000	pounds
C	$	9	per gallon		7,000	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	$	41,000		$	7	per pound
B	$	38,000		$	10	per pound
C	$	11,750		$	11	per gallon

Required:
a.	Compute the incremental profit (loss) for each product.

      

b.

Which product or products should be sold at the split-off point? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

	Product A
	Product B
	Product C

c.

Which product or products should be processed further? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

	Product A
	Product B
	Product C

Answer 1

a) Incremental analysis

	Product A	Product B	Product C
Selling price after further processing	7	10	11
Selling price at split off point	5	6	9
Incremental price	2	4	2
Quantity	11000	16000	7000
Incremental sales	22000	64000	14000
Additional cost	-41000	-38000	-11750
Incremental profit (loss)	-19000	26000	2250

b) Which product or products should be sold at the split-off point?

Product A

C) Which product or products should be processed further?

Product B and Product C