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EXERCISE 13-7 Sell or Process Further Decisions LO13-7
Dorsey Company manufactures three products from a common input in a joint processing
operation.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
$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 Selling

Processing Costs Price
$63,000 $20 per pound
B. $80,000 $13 per pound
$36,000 $32 per gallon
Required:
1. What is the financial advantage (disadvantage) of further processing each of the three prod-ucts
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?
dRON
EXERCISE 13-13 Sell or Process Further Decision LO13-7

Wexpro, Inc., produces several products from processingI ton of clypton, a rare mineral.Material and processing
costs total $60,000 per ton. one-fourth of which is allocated to product X15.Seven thousand units of product X15
are produced from each ton of clypton.The units can either be sold at the split-off point for $9 each, or processed
further at a total cost of $9,500 and then sold for $12 cach.
Requlred:
1. What is the financial advantage (disadvantage) of further processing product X15?
2. Should product X15 be processed further or sold at the split-off point?
PROBLEM 13-20 Sell or Process Further Decision LO13-7
(Prepared from a situation suggested by Professor John W.Hardy.) Lone Star Meat Packers is a on hand, and it
is trying to decide whether to sell the T-bone steaks as they are initially cut or to process them further into
filetIfmignon
the T-bone steaks
and the NewareYork
soldcut.
as initially cut, the company figures that a 1-pound T-bone steak would yield
the following profit:
Selling price ($7.95 per pound) $7.95

Less joint costs incurred up to the split-off point where
T-bone steak can be identified as a separate product... 3.80
Profit per pound $4.15
If the company were to further process the T-bone steaks, then cutting one side of a T-bone steak provides
the filet mignon and cutting the other side provides the New York cut. One 16-ounce T-bone steak cut in this
way will yield one 6-ounce filet mignon and one 8-ounce New York cut:the remaining ounces are waste. It
costs $0.55 to further process one T-bone steak into the filet mignon and New York cuts. The filet mignon can
be sold for $12.00 per pound, and the New York cut can be sold for $8.80 per pound.
Required:
1. What is the financial advantage (disadvantage) of further processing one T-bone steak into filet
mignon and New York cut steaks?
2.Would you recommend that the T-bone steaks be sold as initially cut or processed further?Why?
PROBLEM 13-27 Sell or Process Further Decisions LO13-7
Come-Clean Corporation produces a variety of cleaning comnpounds and solutions for both indu trial
and household use. While most of its products are processed independently,a few are related such as
the company's Grit 337 and its Sparkle silver polish.
Grit 337 is a coarse cleaning powder with many industrial uses. It costs $1.60 a pound to make, and
it has a selling price of $2.00 a pound. A small portion of the annual production of Grit 337 is retained in
the factory for further processing. It is combined with several other ingredients to form a paste that is
marketed as Sparkle silver polish. The silver polish sells for $4.00 per jar.
This further processing requires one-fourth pound of Grit 337 per jar of silver polish.The
additional direct variable costs involved in the processing of a jar of silver polish are:
Other ingredients $0.65
Direct labor 1.48
Total direct cost $2.13
Overhead costs associated with processing the silver polish are:
Variable manufacturing overhead cost. 25% of direct labor cost

Fixed manufacturing overhead cost (per month):
Production supervisor $3,000Depreciation of mixing
equipment $1,400
The production supervisor has no duties other than to oversee production of the silver polish.polish.
It can produce up to 15,000 jars of polish per month. Its resale value is negligible and it does not wear
out through use.
Due to a recent
Advertising decline
costs for theinsilver
the demand for silver
polish total $4,000polish, the company
per month. is wondering
Variable selling costswhether its all
associated withof
the Grit 337 as a cleaning powder.
thé silver polish are 7.5% of sales.
Required:
1. How much incremental revenue does the company earn per jar of polish by further processing
Grit 337 rather than selling it as a cleaning powder?
2. How much incremental contribution margin does the company earn per jar of polish by further
processing Grit 337 rather than selling it as a cleaning powder?
3. How many jars of silver polish must be sold each month to exactly offset the avoidable fixed
costs incurred to produce and sell the polish? Explain.
4. If the company selIs 9,000 jars of polish, what is the financial advantage (disadvantage) of
choosing to further process Grit 337 rather than selling is as a cleaning powder?
5. If the company sells 11,500 jars of polish, what is the financial advantage (disadvantage)of
choosing to further process Grit 337 rather than selling is as a cleaning powder?
(CMA,adapted)

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EXERCISE 13-7 Sell or Process Further Decisions LO13-7

Product Selling Price Quarterly

Product Additional Selling

EXERCISE 13-13 Sell or Process Further Decision LO13-7

Selling price ($7.95 per pound) $7.95

Variable manufacturing overhead cost. 25% of direct labor cost

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