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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 $370,000 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 Output 13,800 pounds 21,500 pounds Product Selling Price A 24.00 per pound s 18.00 per pound 30.00 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 Processing Costs $ 81,150 $117,125 $ 52,900 Selling Price $29.50 per pound $24.50 per pound $38.50 per gallon Product A. 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?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 B Product C Financial advantage (disadvantage) of further processingBased 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? Product A Product B Product C Sell at split-off point? Process further?

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Solution: Incremental Analysis a) Particulars Selling price after further processing Selling price at the split-off point Incremental revenue per pound or gallon Total quarterly output in pounds or gallons Total incremental revenue Total incremental processing costs Financial Advantage/ - Disadvantage of futher processing $ 29.50$ 24.50 $ 38.50 $ 24.00 $ 18.00 $ 30.00 $ 5.50$ 6.50 $ 8.50 5000 13800 $ 75,900 $1,39,750 $ 42,500 $81,150 $1,17,125 $ 52,900 $ -5,250 22,625 $-10,400 21500 s -5,250 S 22,625 b) Following products should be sold at split point: Product A Product C Because it is resulting in a financial disadvantage (refer working) Because it is resulting in a financial disadvantage (refer working) c) Following product should be processed further: Product B Because it is resulting in a financial advantage (refer working)

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