Question

5. value: 1.25 points 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: Product Selling Price $ 3 per pound Quarterly Output 16,000 pounds $ 4 per 21,000 pounds pound 6,000 gallons $10 per gallon 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 Product A $ 42,000 Selling Price 5 per pound B $39,000 $ 8 per C $ 15,250 pound 13 per gallon Required: a. Compute the incremental profit (loss) for each product. Product A Product Product 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

Answer 1

a)

	Product A	Product B	Product C
Selling price after further processing	5	8	13
Selling price at the split-off point	3	4	10
Incremental revenue per pound or gallon	2	4	3
Total quarterly output in pounds or gallons	16000	21000	6000
Total incremental revenue	32000	84000	18000
Total incremental processing costs	42000	39000	15250
Total incremental profit/loss	-10000	45000	2750

b)

Product A should be sold at split off point.

Because if processed further it will result in loss of $10000.

c)

Product B & Product C should be processed further as it will result in incremental revenue of $45000 and $2750 respectively.