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 A $ 20.00 per pound 13,000 pounds B $ 14.00 per pound 20,300 pounds C $ 26.00 per gallon 4,200 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 $ 70,950 $ 25.10 per pound B $ 101,905 $ 20.10 per pound C $ 43,780 $ 34.10 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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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
A $ 20.00 per pound 13,000 pounds
B $ 14.00 per pound 20,300 pounds
C $ 26.00 per gallon 4,200 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 $ 70,950 $ 25.10 per pound
B $ 101,905 $ 20.10 per pound
C $ 43,780 $ 34.10 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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