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 $375,000 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 14,000 pounds 21,800 pounds 5,200 gallons Product Selling Price 25.00 per pound $19.00 per pound 31.00 per gallon А В 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: Additional Selling Price $30.60 per pound $25.60 per pound $39.60 per gallon Product Processing Costs $ 83,800 $121,080 55,280 A В C 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 the split-off point	25.00	19.00	31.00
Incremental revenue per pound or gallon	5.60	6.60	8.60
Total quarterly output in pounds or gallons	14000	21800	5200
Total incremental revenue	78400	143880	44720
Total incremental 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		Yes
Process further		Yes
Product A and Product C should be sold at the split-off point
Product B should be processed further