Exercise 12-13 Sell or Process Further Decision [LO12-7] Wexpro, Inc., produces

Question

Exercise 12-13 Sell or Process Further Decision [LO12-7]

Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $71,000 per ton, one-fourth of which is allocated to product X15. Six thousand five 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 $8,800 and then sold for $22 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

1.

2. Should be processed further

Sales value if processed further(6,500 units × $22 per unit) $143,000 Sales value at the split-off point(6,500 units × $17 per unit) $110,500 Incremental revenue $32,500 Less cost of processing further $8,800 Net advantage of processing further $23,700

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