Utilization of a Constraint

Flying High only has so much space on the plane for seating. The airline can charge $900 for a first class ticket while it can only charge $300 for an economy ticket. The contribution margin on each are $600 and $150 respectively. The big difference is that a first class seat takes up 30 square feet while an economy seat only takes up 12 square feet. If the airline has only 1,650 square feet for seating and a demand of 35 first class tickets and 90 economy seats, how many of each type of seat should they design in the plane?

Sell or Process Further

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 per pound	14,000 pounds
B	$19 per pound	21,800 pounds
C	$31 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 Cost	Selling Price
A	$83,800	$30.60 per pound
B	$121,080	$25.60 per pound
C	$55,280	$39.60 per gallon

What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point? AND Based on your analysis, which product or products should be sold at the split-off point and which product or products should be processed further?