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
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:
Product | Selling Price | Quarterly Output | ||||
A | $ | 25.00 | per pound | 14,000 | pounds | |
B | $ | 19.00 | per pound | 21,800 | pounds | |
C | $ | 31.00 | per gallon | 5,200 | 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 | $ | 83,800 | $ | 30.60 | per pound |
B | $ | 121,080 | $ | 25.60 | per pound |
C | $ | 55,280 | $ | 39.60 | 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?
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