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 $390,000 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 $28.00 per pound $ 22.00 per pound $ 34.00 per gallon Quarterly Output 14,600 pounds 22,700 pounds 5,800 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: Additional Product Processing Costs $ 91,990 $ 133,305 $ 62,660 Selling Price $33.90 per pound $28.90 per pound $42.90 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.) Product Product B Product C Financial advantage (disadvantage) of further processing Required 1 Required 2 >

Answer 1

1.

	Product A	Product B	Product C
Selling Price after further processing	14,600*$33.90 = $494,940	22,700*$28.90 = $656,030	5,800*$42.90 = $248,820
Less: Selling Price at the split off point	14,600*$28 = $408,800	22,700*$22 = $499,400	5,800*$34 = $197,200
Incremental Revenue	$                                      86,140	$                                   156,630	$                                   51,620
Estimated additional processing cost	$                                      91,990	$                                   133,305	$                                   62,660
Financial advantage (disadvantage) of further processing	$                                      (5,850)	$                                      23,325	$                                 (11,040)

2.

	Product A	Product B	Product C
Sell at split off point	Sell		Sell
Process further		Process

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