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 $31,000 per ton, one-fourth of which is allocated to product X15. 8,000 units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $15.00 each, or processed further at a total cost of $12,000 and then sold for $20.00 each

Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $31,000 per ton, one-fourth of which is allocated to product X15. 8,000 units of product X15 are produced from each ton of clypton. The units can elther be sold at the split-off point for $15.00 each, or processed further at a total cost of $12,000 and then sold for $20.00 each. Required: Should product X15 be processed further or sold at the split-off point? Should be processed further Should be sold at the split off point

Explanation / Answer

Sold at slit of point:
------------------------
profit=selling price -cost
=(15*8000)-(31000*.25)
=$112,250

Proceesed further:
-------------------
profit=selling price -cost
=(20*8000)-(31000*.25)-12000
=$140,250

Since profit is higher for processed further, they should go for it

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