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……………….. $16 per pound 15,000 pounds
B……………….. $8 per pound 20,000 pounds
C……………….. $25 per gallon 4,000 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…………….. $63,000 $20 per pound
B…………….. $80,000 $13 per pound
C…………….. $36,000 $32 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 splitoff point and which product or products should be processed further?