1. What is the financial advantage (disadvantage) of further processing product

Question

1. What is the financial advantage (disadvantage) of further processing product X15? Wexpro, Inc. produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $50,000 per ton, one-fourth of which is allocated to product X15. Seven thousand seven hundred units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $17 each, or processed further at a total cost of $6,200 and then sold for $23 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? Product X15 should be

Explanation / Answer

Answer)

Profit estimataton table:

$130900

($17×7700 units)

$177100

($23×7700 units)

1)The financial advantage of further processing of X15 is profit increased by $40000($120900-$40900) per every ton.

2)It is recommended to further process X15 as it boosts the profit by $40000 per every ton

Particulars X15 furthur processed
X15 Sales revenue

$130900

($17×7700 units)

$177100

($23×7700 units)

(Less)cost till split off point ($50000) ($50000) (Less)further processing costs - ($6200) Profit $80900 $120900

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