Exercise 13-7 (Static) Sell or Process Further Decisions [LO13-7]

Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $350,000 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

1. A$
2. B$
3. C$

16 per pound 15,000 pounds 8 per pound

25 per gallon 4,000 gallons

20,000

pounds

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

1. A$63,000
2. B$80,000
3. C$36,000

Required:

$20 per pound $13 per pound $32 per gallon

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?