Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $300,000 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 $ 10.00 per pound 11,000 pounds B $ 4.00 per pound 17,300 pounds C $ 16.00 per gallon 2,200 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 $ 48,250 $ 14.10 per pound B $ 68,055 $ 9.10 per pound C $ 23,780 $ 23.10 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?

If product A is processed further beyond split-off point, the incremental revenue $45,100 is less than incremental costs i.e. $48,250, resulting in the incremental loss of $3,150. Therefore, product A should not be further processed.

Product B:

If product B is processed further beyond split-off point, the incremental revenue $88,230 is more than incremental costs i.e. $68,055, resulting in the incremental profit of $20,170. Therefore, product B should be further processed.

Product C:

If product C is processed further beyond split-off point, the incremental revenue $15,620 is less than incremental costs i.e. $23,780, resulting in the incremental loss of $8,160. Therefore, product C should not be further processed.

Task 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?

Solution:

The workings are attached.