Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $360,000 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 | $ | 22.00 | per pound | 13,400 | pounds | |
B | $ | 16.00 | per pound | 20,900 | pounds | |
C | $ | 28.00 | per gallon | 4,600 | 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 | $ | 75,970 | $ | 27.30 | per pound |
B | $ | 109,395 | $ | 22.30 | per pound |
C | $ | 48,260 | $ | 36.30 | 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?
Answer:-1)-The financial disadvantages of processing Product A beyond the split-off point is= $4950.
The financial advantages of processing Product B beyond the split-off point is=$22275.
The financial disadvantages of processing Product C beyond the split-off point is=$10080.
Explanation-
Doresy Company | |||||
Statement Of Financial advantage (disadvantage) | |||||
Product | Sale value at Split-Off-Point | Sale value of processed product | Incremental sale | Cost to further process | Incremental profit/(loss) |
$ | $ | $ | $ | $ | |
(a) | (b) | (c=b-a) | (d) | (e=c-d) | |
A | 13400 pounds*$22 per pound =294800 | 13400 pounds*$27.30 per pound =365820 | 71020 | 75970 | -4950 |
B | 20900 pounds*$16 per pound = 334400 | 20900 pounds*$22.30 per pound = 466070 | 131670 | 109395 | 22275 |
C | 4600 gallons*$28 per gallon = 128800 | 4600 gallons*$36.30 per gallon = 166980 | 38180 | 48260 | -10080 |
2)-Product A & C should be sold at split-off point and product B should be processed further.
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $360,000 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 $ 22.00 per pound 13,400 pounds B $ 16.00 per...
Dorsey company... Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $360,000 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: points Product A Selling Price $ 22.00 per pound $ 16.00 per pound $...
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $360,000 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 22.00 per pound $ 16.00 per pound $ 28.00 per gallon Quarterly Output...
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $350,000 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 $ 16 per pound 15,000 pounds B $ 8 per...
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