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Dorsey Company manufactures three products from a common input in a joint processing operation. Joint...

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Accounting

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 based on 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 split-off point and which should be processed further?
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