Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $300,000 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 | $ | 10.00 | per pound | 11,000 | pounds | |
B | $ | 4.00 | per pound | 17,300 | pounds | |
C | $ | 16.00 | per gallon | 2,200 | 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:
Product |
Additional Processing Costs |
Selling Price |
|||
A | $ | 48,250 | $ | 14.10 | per pound |
B | $ | 68,055 | $ | 9.10 | per pound |
C | $ | 23,780 | $ | 23.10 | 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?
1. What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point?
Product A |
Product B |
Product C |
|
Selling price after further processing |
14.10 |
9.10 |
23.10 |
Selling price at the split-off point |
10.00 |
4.00 |
16.00 |
Incremental revenue per pound |
4.10 |
5.10 |
7.10 |
Total quarterly output in pounds |
11,000.00 |
17,300.00 |
2,200.00 |
Total incremental revenue |
45,100.00 |
88,230.00 |
15,620.00 |
Total incremental processing costs |
48,250.00 |
68,055.00 |
23,780.00 |
Total incremental profit or loss |
(3,150.00) |
20,175.00 |
(8,160.00) |
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?
Products should be sold at the split-off point = Product A & Product C
Products should be processed further = Product B
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $300,000 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 $ 10.00 per pound $ 4.00 per pound $ 16.00 per gallon Quarterly...
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...
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Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $360,000 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 $ 22.00 per pound 13,400 pounds B $ 16.00 per...
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $340,000 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: Each product can be processed further after the split-off point. Additional processing requires no special facilities....
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