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 $91,000 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:

Quarterly Output 18,000 pounds Product Selling Price per pound per pound 23,000 pounds $ 9 per gallon 7,000 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 $ 38,000 $ 38,000 $ 9,000 Product Selling Price $ 4 per pound $ 7 per pound $11 per gallon Required: a. Compute the incremental profit (loss) for each product. Product A Product B Product C 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 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 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.) Product A Product B Product C

Answer 1

Answer: a. Calculation of incremental profit/(loss) for each product:

Particulars	Product A	Product B	Product C
Selling price after further processing ($) per pound	4	7	11
Selling price at the split-off point ($) per pound	3	4	9
Incremental revenue per pound or gallon ($)	1	3	2
Total quarterly output in pounds or gallons	18000	23000	7000
Total incremental revenue ($) (A)	18000	69000	14000
Total incremental processing costs ($) (B)	38000	38000	9000
Total incremental profit or loss ($) (A-B)	-20000	31000	5000

Answer b. Any costs incurred up to the split-off point aresunk costs, and therefore, irrelevant to this decision.

Product A should be sold at the split-off point because it reported incremental loss after further processing.

Answer:c Product B and Product C should be processed further because it reported incremental profit after further processing.