Exercise 11-7 Sell or Process Further Decisions [LO11-7]
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $335,000 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 | $ | 17.00 | per pound | 12,400 | pounds | |
| B | $ | 11.00 | per pound | 19,400 | pounds | |
| C | $ | 23.00 | per gallon | 3,600 | 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 | $ | 63,720 | $ | 21.80 | per pound |
| B | $ | 91,120 | $ | 16.80 | per pound |
| C | $ | 37,360 | $ | 30.80 | 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?
What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point?
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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 (disadvantage)
| Product A | Product B | Product C | |
| Selling price after further processing | 21.80 | 16.80 | 30.80 |
| Selling price at split off point | 17 | 11 | 23 |
| Incremental selling price | 4.8 | 5.8 | 7.80 |
| Quantity | 12400 | 19400 | 3600 |
| Incremental revenue | 59520 | 112520 | 28080 |
| Incremental cost | -63720 | -91120 | -37360 |
| Incremental profit (loss) | -4200 | 21400 | -9280 |
Analysis
| Product A | Product B | Product C | |
| Sell at split-off point? | Yes | No | Yes |
| Process further? | No | Yes | No |
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