Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare

Question

Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $56,000 per ton, one-fourth of which is allocated to product X15. Eight thousand six hundred units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $15 each, or processed further at a total cost of $6,900 and then sold for $21 each.

Required:

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?

Explanation / Answer

Should be processed further.

Sales value if processed further(8,600 units × $21 per unit) $180,600 Sales value at the split-off point(8,600 units × $15 per unit) $129,000 Incremental revenue $51,600 Less cost of processing further $6,900 Net advantage of processing further $44,700

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