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 $355,000 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 A B C Selling Price $ 21.00 per pound $ 15.00 per pound $ 27.00 per gallon Quarterly Output 13,200 pounds 20,600 pounds 4,400 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 $ 73,440 $105,620 $ 46,000 Selling Price $26.20 per pound $21.20 per pound $35.20 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) Incremental analysis

	Product A	Product B	Product C
Selling price after further processing	26.20	21.20	35.20
Selling price at split off	21	15	27
Incremental price	5.20	6.20	8.20
Quantity	13200	20600	4400
Incremental revenue	68640	127720	36080
Incremental Cost	-73440	-105620	-46000
Financial advantage (disadvantage)	-4800	22100	-9920

Analysis

	Product A	Product B	Product C
Sell at split off poind	Yes	No	Yes
Process further	No	Yes	No