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Dorsey Company manufactures three products from a common input in a joint processing operation
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 A B C Selling Price $ 26.00 per pound $ 20.00 per pound $ 32.00 per gallon Quarterly Output 14,200 pounds 22,100 pounds 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: Additional Product Processing Costs A $ 86,490 B $125,095 ? $ 57,700 Selling Price $31.70 per pound $26.70 per pound $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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point? (Enter "disadvantages" as a negative value.) Product A Product B Product C Financial advantage (disadvantage) of further processing < Required 1 Required 2 > Complete this question by entering your answers in the tabs below. Required 1 Required 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? Product A Product B Product C Sell at split-off point? Process further? < Required 1 Required 2 >
Expert Solution
Solution 1:
Answer:
| Computation of financial adavantage / disadvantage of further processing | ||||||
| Particulars | Product A | Product B | Product C | |||
| Details | Amount | Details | Amount | Details | Amount | |
| Sale Value after further processing | 14200*31.70 | $450,140.00 | 22100*26.70 | $590,070.00 | 5400*40.70 | $219,780.00 |
| Less: Sale value at split off Point | 14200*26 | $369,200.00 | 22100*20 | $442,000.00 | 5400*32 | $172,800.00 |
| Incremental Revenue - Further Processing | $80,940.00 | $148,070.00 | $46,980.00 | |||
| Less: Further Processing Cost | $86,490.00 | $125,095.00 | $57,700.00 | |||
| Financial advantage (Disadvantage) for further processing | -$5,550.00 | $22,975.00 | -$10,720.00 | |||
As product A & C is showing financial disadvantage if they are further processed, hence these products should be sold at split off point. Further Product B is showing financial advantage for further processing, hence same should be further processed.
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