Problem 4: Sell or Process Further Wexpro, Inc., produces several products from

Question

Problem 4: Sell or Process Further Wexpro, Inc., produces several products from processing 1 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 each. Required: Should product X15 be processed further or sold at the split-off point?

Explanation / Answer

Incremental analysis :

Company should process further product X15

Sale revenue after further processing (7000*12) 84000 Sale revenue at split off point (7000*9) 63000 Incremental revenue 21000 Less: Incremental cost -9500 Incremental profit (loss) 11500

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