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 $91,000 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 $ 4 per pound 15,000 pounds B $ 5 per pound 20,000 pounds C $ 10 per gallon 6,000 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 $ 42,000 $ 5 per pound B $ 36,000 $ 8 per pound C $ 14,750 $ 13 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.

	Product A	Product B	Product C
Selling price after further processing	5.00	8.00	13.00
Selling price at split-off	4.00	5.00	10.00
Incremental revenue	1.00	3.00	3.00
Quarterly output	15000	20000	6000
Total incremental revenue	15000	60000	18000
Total incremental processing costs	42000	36000	14750
Total incremental profit (loss)	-27000	24000	3250

b. Sell at split-off point: Product A

Product A should be sold at the split-off point since further processing will result in a loss.

c. Process further: Product B and Product C

Products B and C should be processed further since it will result in incremental profit.