Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $330,000 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 |
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| A | $ | 16.00 | per pound | 12,200 | pounds | |
| B | $ | 10.00 | per pound | 19,100 | pounds | |
| C | $ | 22.00 | per gallon | 3,400 | 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 |
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| A | $ | 61,390 | $ | 20.70 | per pound |
| B | $ | 87,645 | $ | 15.70 | per pound |
| C | $ | 35,300 | $ | 29.70 | per gallon |
What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point? (Enter "disadvantages" as a negative value.)
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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?
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Calculate financial advantage or disadvantage :
| Product A | Product B | Product C | |
| Sale price after further processing | 20.70 | 15.70 | 29.70 |
| Sale price at split off point | 16 | 10 | 22 |
| Incremental sale price | 4.70 | 5.70 | 7.70 |
| Quantity | 12200 | 19100 | 3400 |
| Incremental sales revenue | 57340 | 108870 | 26180 |
| Less: Incremental cost | 61390 | 87645 | 35300 |
| Incremental profit (loss) | -4050 | 21225 | -9120 |
Analaysis :
| Product A | Product B | Product C | |
| Sell at split off point | Yes | No | Yes |
| Sell after further processing | No | Yes | No |
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