Homework SourseDorsey Company manufactures three products from a common inp
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $305,000 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:
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:
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?
| Product | Selling Price | Quarterly Output | ||||
| A | $ | 11.00 | per pound | 11,200 | pounds | |
| B | $ | 5.00 | per pound | 17,600 | pounds | |
| C | $ | 17.00 | per gallon | 2,400 | gallons | |
Solution
1.
Financial advantage of further processing = [(selling price after additional processing - Selling price at split off) * Quarterly output] - Additional processing costs
A = [(15.2 - 11) * 11,200] - 50,340 = 3,300 financial disadvantage
B = [(10.2 - 5) * 17,600] - 71,170 = 20,350 financial advantage
C = [(24.2 - 17) * 2,400] - 25,600 = 8,320 financial disadvantage
2.
Products A and C should be sold at splitoff.
(as there is financial disadvantage from processing further)
Product B should be processed further.
(as there is financial advantage from processing further)
