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 $300,000 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 $ 10.00 per pound $ 4.00 per pound $ 16.00 per gallon Quarterly Output 11,000 pounds 17,300 pounds 2,200 gallons C 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 $48,250 $68,055 $23,780 Selling Price $14.10 per pound $ 9.10 per pound $23. 10 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point? (Enter "disadvantages" as a negative value.)

Answer 1

Incremental analysis

	A	B	C
Selling price after further processing	14.10	9.10	23.10
Selling price at split off	10	4	16
Incremental price	4.10	5.10	7.10
Quantity	11000	17300	2200
Incremental revenue	45100	88230	15620
Incremental cost	-48250	-68055	-23780
Financial advantage (disadvantage)	-3150	20175	-8160

Analysis

	A	B	C
Sell at split off point	Yes	No	Yes
Process further	No	Yes	No