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 $355,000 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	$	21.00	per pound		13,200	pounds
B	$	15.00	per pound		20,600	pounds
C	$	27.00	per gallon		4,400	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	$	73,440	$	26.20	per pound
B	$	105,620	$	21.20	per pound
C	$	46,000	$	35.20	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?

Answer 1

Answer:-1)-

Dorsey Company
Statement Of Incremental Profit/(loss)
Product	Sale value at Split-Off-Point	Sale value of processed product	Incremental sale	Cost to further process	Financial advantage (disadvantage)
	$	$	$	$	$
	(a)	(b)	(c=b-a)	(d)	(e=c-d)
A	13200 pounds*$21 per pound=277200	13200 pounds*$26.20 per pound=345840	68640	73440	-4800
B	20600 pounds*$15 per pound=309000	20600 pounds*$21.20 per pound=436720	127720	105620	22100
C	4400 gallons *$27 per gallons=118800	4400 gallons *$35.20 per gallons=154880	36080	46000	-9920

2)- Based on your analysis in requirement 1, product B should be processed further and products A & C should be sold at the split-off point.