Question

Exercise 12-7 Sell or Process Further Decisions [LO12-7] Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $335,000 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: Quarterly Output 12,400 pounds 19,400 pounds 3,600 gallons Product Selling Price $ 17.00 per pound $ 11.00 per pound 23.00 per gallon A В 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: Additional Selling Price $21.80 per pound $16.80 per pound $30.80 per gallon Product Processing Costs $63,720 $91,120 $37,360 А В C 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

Answer 1

Particulars A.Production units B. Selling price at split off C. Selling price after process D. Sales after process(A*C) E Sales at split off ( A * B) Product-A Product -B Product -C 12400 17.00 $ 21.80 $ 19400 11.00 23.00 16.80 $ 3600 30.80 $ 270,320 $ 325,920$110,880 210,800$ 213,400 $82,800 Calculating Financial advantage/(Disadvantage) Particulars Sales after processed (E) Sales at split off ( D) Incremental revenue (E - D) Additional cost Incremental income/(loss) Product-A $ 270,320 $ 325,920$ 110,880 $210,800 $ 213,400 82,800 $ Product -B Product -C 59,520 $112,520 28,080 $ 63,720 $ $ 91,120 $37,360 21,400 (9,280) (4,200) $ Particulars Split off Process further Product-A Product -B Product -C YES YES YES