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 $95.000 per quarter. 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 S4 per pound 14,000 pounds B S5 per pound 19,000 pounds C S 12 per gallon 5.000 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. Additional Product Processing Costs Selling Price A $ 40,000 $ 6 per pound $ 39.000 $ per pound c $ $ 17250 $ 18 per callon Required: a. Compute the incremental profit (loss) for each product. Product A Product B Product Seling price after further processing Selling price at the spil-off point Incremental revenue per pund or gallon Tolal quarterly output in pounds or gallons Total incremental revenue Total incremental processing costs Total incremental profit or loss b. Which product or products should be sold at the split-off point? [You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.) Product A El Product B Product C c. Which product or products should be processed further? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.) 7 Product A Product B Product c

Answer 1

(a)
	Product A	Product B	Product C
Selling price after further processing	$ 6	$ 9	$ 16
Less: Selling price at the split-off point	($ 4 )	($ 5)	($ 12)
Incremental revenue per pound or gallon	$ 2	$ 4	$ 4
x Total quarterly output in pounds or gallons	14,000	19,000	5,000
Total incremental revenue	$ 28,000	$ 76,000	$ 20,000
Less: Total incremental processing costs	($ 40,000)	($ 39,000)	($ 17,250)
Total Incremental Profit or loss	($ 12,000)	$ 37,000	$ 2,750

(b)
	Product A	Product B	Product C
Sell at split-off point	Yes	No	No
	Product A	Product B	Product C
Process further	No	Yes	Yes
Product A should be sold at split-off point
Product B and Product C should be processed further