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 $53,000 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 $16 each, or processed further at a total cost of $8,600 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? 2. Product X15 should be

Explanation / Answer

1. There is a financial advantage of further processing as shown below:

Thus there is a financial advantage of $26,400

2. As there is a financial advantage of $26,400 from further processing, the product X15 should be processed further.

Differential analysis report of further processing of Product X15 Amount($) Amount($) Sale after further processing (7,000*21)                    147,000 Sale at split-off point (7,000*16)                   112,000             Differential revenue 35,000 Differential cost after further processing Additional cost of further processing 8,600 Differential income from further processing 26,400

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