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 $375,000 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 Product Selling Price $ 25.00 per pound $ 19.00 per pound $ 31.00 per gallon Output 14,000 pounds 21,800 pounds 5,200 gallons А 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 Processing Selling Price Costs Product $30.60 per pound $25.60 per pound $39.60 per gallon A 83,800 $121,080 55,280 в с 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

Answer:-1)-The financial disadvantages of processing Product A beyond the split-off point is= $5400.

The financial advantages of processing Product B beyond the split-off point is=$22800.

The financial disadvantages of processing Product C beyond the split-off point is=$10560.

Doresy Company
Statement Of Incremental Profit/(loss)
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	14000 pounds*$25 per pound =$350000	14000 pounds*$30.60 per pound =$428400	78400	83800	-5400
B	21800 pounds*$19 per pound =$414200	21800 pounds*$25.60 per pound =$558080	143880	121080	22800
C	5200 gallons*$31 per gallon = $161200	5200 gallons*$39.60 per gallon = $205920	44720	55280	-10560

2)-Product A & C should be sold at split-off point and product B should be processed further.