Question

Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $66,000 per ton, one-fourth of which is allocated to product X15. Seven thousand four hundred units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $18 each, or processed further at a total cost of $9,500 and then sold for $23 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?

Answer 1

Answer:

It is more profitable to continue processing and sell the units for $23. Income will increase by $27,500.

Explanation:

Giving the following information:

7,400 units of product X15 are produced from each ton.

The units can either be sold at the split-off point for $18 each or processed further at a total cost of $9,500 and then sold for $23 each.

We will not consider the firsts costs incurred because they won't change the decision.

Sell at the split-off:

Effect on income= 18*7,400= $133,200

Continue processing:

Effect on income= 7,400*23 - 9,500= $160,700

It is more profitable to continue processing and sell the units for $23. Income will increase by $27,500.