A Dorsey Company manufactures three products from a common input in a joint processing operation Joint processing costs up to the split off point total $380,000 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 Product Selling Price Quarterly Output A $ 26 00 per pound 14,200 pounds B $ 20 00 per pound 22,100 pounds C $ 32 00 per gallon 5,400 gallons 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 Selling Price A $ 86,490 $ 31 70 per pound B $ 125,095 $ 26 70 per pound C $ 57,700 $ 40 70 per gallon 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 B Futura Company purchases the 50,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10 90 per unit Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier However, the companys chief engineer is opposed to making the starters because the production cost per unit is $11 60 as shown below Per Unit Total Direct materials $ 5 00 Direct labor 2 80 Supervision 1 70 $ 85,000 Depreciation 1 00 $ 50,000 Variable manufacturing overhead 0 60 Rent 0 50 $ 25,000 Total production cost $ 11 60 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $85,000) to oversee production However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased The rent charge above is based on space utilized in the plant The total rent on the plant is $85,000 per period Depreciation is due to obsolescence rather than wear and tear Required What is the financial advantage (disadvantage) of making the 50,000 starters instead of buying them from an outside supplier

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A. Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $380,000

Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $380,000 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:

Product	Selling Price			Quarterly Output
A	$	26.00	per pound		14,200	pounds
B	$	20.00	per pound		22,100	pounds
C	$	32.00	per gallon		5,400	gallons

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		Selling Price
A	$	86,490	$	31.70	per pound
B	$	125,095	$	26.70	per pound
C	$	57,700	$	40.70	per gallon

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?

Futura Company purchases the 50,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.90 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the companys chief engineer is opposed to making the starters because the production cost per unit is $11.60 as shown below:

	Per Unit		Total
Direct materials	$	5.00
Direct labor		2.80
Supervision		1.70	$	85,000
Depreciation		1.00	$	50,000
Variable manufacturing overhead		0.60
Rent		0.50	$	25,000
Total production cost	$	11.60

If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $85,000) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $85,000 per period. Depreciation is due to obsolescence rather than wear and tear.

Required:

What is the financial advantage (disadvantage) of making the 50,000 starters instead of buying them from an outside supplier?