Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $320,000 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 |
||||
A | $ | 14.00 | per pound | 11,800 | pounds | |
B | $ | 8.00 | per pound | 18,500 | pounds | |
C | $ | 20.00 | per gallon | 3,000 | 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 | $ | 56,850 | $ | 18.50 | per pound |
B | $ | 80,875 | $ | 13.50 | per pound |
C | $ | 31,300 | $ | 27.50 | 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?
req 1
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.)
|
req 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?
|
ANSWER :-
(A)
Product A | Product B | Product C | |
Selling price after further processing | 18.5 | 13.5 | 27.5 |
Selling price at the split-off point | 14 | 8 | 20 |
Incremental revenue per pound or gallon | 4.5 | 5.5 | 7.5 |
Total quarterly output in pounds or gallons | 11800 | 18500 | 3000 |
Total incremental revenue | 53100 | 101750 | 22500 |
Total incremental processing costs | 56850 | 80875 | 31300 |
Financial advantage (disadvantage) | -3750 | 20875 | -8800 |
(B)
Product A and Product should be sold at the split-off point |
Product B should be processed further |
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