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 split off point and which product or products should be processed further?