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

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.

	Product A	Product B	Product C
Selling price after further processing
Selling price at the split-off point
Incremental revenue per pound or gallon
Total quarterly output in pounds or gallons
Total incremental revenue
Total incremental processing costs
Total incremental profit or loss

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)

	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