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 $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?

Homework Answers

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.

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