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 $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:

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

Should be processed further.

Sales value if processed further(7,000 units × $12 per unit) $84,000 Sales value at the split-off point(7,000 units × $9 per unit) $63,000 Incremental revenue $21,000 Less cost of processing further $9,500 Net advantage of processing further $11,500

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