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Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and...

Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $78,000 per ton, one-fourth of which is allocated to product X15. Eight 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 $10 each, or processed further at a total cost of $6,000 and then sold for $13 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?

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Answer #1

Answer : Calculation of Fiancial advantage and Disadvantage of Further Processing :

Below is the table showing Net Income under both cases :

Sale at Split off Sale after further processing
Sales 84000 (8400 * 10) 109200 (8400 * 13)
Less : Processing cost 19500 (78000 * 1/4) 19500 (78000 * 1/4)
Less : Further Processing Cost - 6000
Net Income 64500 83700

Therefor there is financial advantage of 19200 (83700 - 64500) for further processing.

2.) The units should be further processed as there is financial advantage.

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