problem 3 Sell or Process Further Dorsey Company manufacture

problem 3: Sell or Process Further Dorsey Company manufactures three products from a common input in a joint processing oper costs up to the split-off point total $350,000 per quarter. The company allocates basis of their relative sales value at the split-off point. Unit selling prices and to follows these costs to the joint products on the tal output at the split-off point are as Product A. B. C Seliling Price Quarterly output $16 per pound $8 per pound $25 per gallon 15,000 pounds 20,000 pounds 4,000 gallons Each product can be processed further after the spit-off point Additional processing requires no special facilites. additional processing costs (per quarter) and unit selling prices after further processing are given below Additlonal Processing Costs $63,000 $80,000 $36,000 Selling Price $20 per pound $13 per pound $32 per gallon Product A. B. C. Required: Which product or products should be sold at the split-off point and which product or products should be processed further? Show computations.

Solution

Total incremental profit or (loss) Analysis

Product A

Product B

Product C

Selling price after further processing

20.00

13.00

32.00

Selling price at the split-off point

16.00

8.00

25.00

Incremental revenue per pound or gallon

4.00

5.00

7.00

Total quarterly output in pounds or gallons

15000

20000

4000

Total incremental revenue

60,000

100,000

28,000

Total incremental processing costs

63,000

80,000

36,000

Total incremental profit or (loss)

(3,000)

20,000

(8,000)

Products should be sold at the split-off point = Product A & Product C [Since, it has the incremental loss ]

Product should be processed further = Product B [It gives the incremental profit of $20,000]

	Product A	Product B	Product C
Selling price after further processing	20.00	13.00	32.00
Selling price at the split-off point	16.00	8.00	25.00
Incremental revenue per pound or gallon	4.00	5.00	7.00
Total quarterly output in pounds or gallons	15000	20000	4000
Total incremental revenue	60,000	100,000	28,000
Total incremental processing costs	63,000	80,000	36,000
Total incremental profit or (loss)	(3,000)	20,000	(8,000)