Question

Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $54,000 per ton, one-fourth of which is allocated to product X15. Six 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 $17 each, or processed further at a total cost of $8,700 and then sold for $20 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?
1.
2. Product X15 should be

Answer 1

Answer:

1. What is the financial advantage (disadvantage) of further processing product X15?

• financial advantage of further processing X15 =  $10,206

2. Should product X15 be processed further or sold at the split-off point?

• X15 should be processed further

Explanation:

processing costs for every batch of X15 (6,300 units) = $54,000 x 1/4 = $13,500

production cost per unit $13,500 / 6,300 = $2.14286 = $2.14 per X15

contribution margin per unit without further processing = $17 - $2.14 = $14.86

costs of further processing $8,700, per unit = $8,700 / 6,300 = $1.38

total costs per unit $2.14 + $1.38 = $3.52

contribution margin with further processing = $20 - $3.52 = $16.48

total financial advantage of further processing X15 = ($16.48 - $14.86) x 6,300 = $10,206