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 $325,000 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: Selling Product Price A $ 15.00 per Quarterly Output 12,000 pounds B 18,800 pounds $ 9.00 per pound $ 21.00 per gallon C 3,200 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 Processing Costs Product Selling Price $59,100 100 $19.60 per $19.60 pound 1230 $14.60 per pound per $33,280 $ 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 Required 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 A Product A Product Product B C Financial advantage (disadvantage) of further processing

Answer 1

Solution 1: (1)

Dorsey Company
Financial advantage (disadvantage) of further procesing beyond split off point
Particulars	Product A	Product B	Product C
Selling price after further processing	$19.60	$14.60	$28.60
Selling price at split off point	$15.00	$9.00	$21.00
Increment revenue per pound or gallon	$4.60	$5.60	$7.60
*Total quarterly output in pound or gallon	12000	18800	3200
Total Incremental Revenue	$55,200	$1,05,280	$24,320
Total incremental processing cost	$59,100	$84,230	$33,280
Financial advantage (disadvantage) of further processing	-$3,900	$21,050	-$8,960

Solution 1: (2)

Product A and Product C should be sold at split off point.

Product B should be processed further.

Solution 2: (1)

Computation of financial advantage (disadvantage) from Special Order
	Amount
Sales Revenue (1500*$23)	$34,500
Less: Variable costs:
Direct materials (1500*$1.90)	$2,850
Direct Labor (1500*$3.00)	$4,500
Variable Manufacturing Overhead (1500*$0.50)	$750
Variable Selling and administrative expenses (1500*$1.40)	$2,100
Financial advantage from Special order	$24,300

Solution 2: (2)

Relevant cost per unit = Variable selling and administrative expense = $1.40 per unit