Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $365,000 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 | $ | 23.00 | per pound | 13,600 | pounds | |
| B | $ | 17.00 | per pound | 21,200 | pounds | |
| C | $ | 29.00 | per gallon | 4,800 | 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 | $ | 78,540 | $ | 28.40 | per pound |
| B | $ | 113,230 | $ | 23.40 | per pound |
| C | $ | 50,560 | $ | 37.40 | 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?
1.
| Product A | Product B | Product C | |
| Sales value after split off point | $386,240 (13,600*$28.40) | $496,080 (21,200*$23.40) | $179,520 (4,800*$37.40) |
| Sales value at split off point | 312,800 (13,600*$23) | 360,400 (21,200*$17) | 139,200 (4,800*$29) |
| Incremental sales | 73,440 | 135,680 | 40,320 |
| Less: Additional processing costs | 78,540 | 113,230 | 50,560 |
| Financial advantage (disadvantage) | $(5,100) | $22,450 | $(10,240) |
2.
Product A and Product C should be sold at split off point. Product B should be processed further.
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