Question

Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to t split-off point total $375,000 per quarter. For financial reporting purposes, the company allocates these costs to the joint products 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 $ 25.00 per pound $ 19.00 per pound $ 31.00 per gallon Quarterly Output 14,000 pounds 21,800 pounds 5,200 gallons C 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 $ 83,800 $121,080 $ 55,280 Selling Price $30.60 per pound $25.60 per pound $39.60 per gallon с 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?

Answer 1

1.

	Product A	Product B	Product C
Selling price after further processing	30.60	25.60	39.60
Selling price at split-off	25.00	19.00	31.00
Incremental revenue	5.60	6.60	8.60
Quarterly output	14000	21800	5200
Total incremental revenue	78400	143880	44720
Additional processing costs	83800	121080	55280
Financial advantage (disadvantage) of further processing	-5400	22800	-10560

2.

	Product A	Product B	Product C
Sell at split-off point?	Yes	No	Yes
Process further?	No	Yes	No