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 $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 A $ 16 per pound B $ 8 per pound C $ 25 per gallon Quarterly Output 15,000 pounds 20,000 pounds 4,000 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 $63,000 $80,000 $36,000 Selling Price $20 per pound $13 per pound $32 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?

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 pound		20,000	pounds
C	$	25	per gallon		4,000	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	$	63,000	$	20	per pound
B	$	80,000	$	13	per pound
C	$	36,000	$	32	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

1.allocate joint cost

	a	b	c	Total
sales	15000	20000	4000
sell price $	16	8	25
Total sales value	240000	160000	100000	500000
joint cost allocation	168000[350000/500000]*240000	112000[350000/500000]*160000	70000[350000/500000]*100000	350000

Comparision between sold at split off and further processing

	A	B	C
Sale at split off	240000	160000	100000
Less: joint cost allocated	(168000)	(112000)	(70000)
income A	72000	48000	30000
further process
sales	300000[15000*20]	260000[20000*13]	128000[4000*32]
less: joint cost allocated	(168000)	(112000)	(70000)
less: further processing cost	(63000)	(80000)	(36000)
Net Income B	69000	68000	22000
Net financial advantage(disadvantage) B-A	(3000) [69000-72000]	20000 [68000-48000]	(8000) [22000-30000]	ANSWER 1
FURTHER PROCESS OR SELL AT SPLIT OFF	SELL AT SPLIT OFF	Further process	SELL AT SPLIT OFF

IF THER IS FINANCIAL DISADVANTAGE PRODUCT SHOULD NOT BE FURTHER PROCEESED.