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
Product | Selling Price | Quarterly Output | |||
A | $ | 3 | per pound | 19,000 | pounds |
B | $ | 4 | per pound | 24,000 | pounds |
C | $ | 9 | per gallon | 7,000 | 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 | $ | 41,000 | $ | 4 | per pound |
B | $ | 36,000 | $ | 7 | per pound |
C | $ | 11,000 | $ | 11 | 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 |
a)
A | B | C | |
Selling price after further processing | 4 | 7 | 11 |
Selling price at the split-off point | (3) | (4) | (9) |
Incremental revenue per pound or gallon | 1 | 3 | 2 |
Total quarterly output in pounds or gallons | 19000 | 24000 | 7000 |
Total incremental revenue | 19000 | 72000 [3*24000] | 14000 [2*7000] |
Total incremental processing costs | (41000) | (36000) | (11000) |
Total incremental profit or (loss) | (22000) | 36000 | 3000 |
B)product or products should be sold at the split-off point = Product A since there is incremental loss
c)product or products should be processed further
product B and product C
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