Question

Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $64,000 per ton, one-fourth of which is allocated to product X15. Seven thousand three hundred units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $10 each, or processed further at a total cost of $9,700 and then sold for $15 each. What is the financial advantage (disadvantage) of further processing product X15?

Answer 1

Answer:

$26,800

Explanation:

Sales revenue after further processing:

= Units produced from each ton of clypton × Selling price per unit

= 7,300 × $15

= $109,500

Sales revenue at split off point:

= Units produced from each ton of clypton × Selling price per unit

= 7,300 × $10

= $73,000

Incremental revenue:

= Sales revenue after further processing - Sales revenue at split off point

= $109,500 - $73,000

= $36,500

Incremental profit = Incremental revenue - Incremental cost

                              = $36,500 - $9,700

                              = $26,800

Therefore, financial advantage (disadvantage) of further processing product X15 is $26,800.