Question

Exercise 11-13 Sell or Process Further Decision (LO11-7) Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $55,000 per ton, one-fourth of which is allocated to product X15. Six thousand one hundred units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $14 each, or processed further at a total cost of $9,200 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? 2. Product X15 should be

Answer 1

Solution 1:

Sale value after further processing= 6100*$20 = $122,000

Sale value at split off = 6100*$14 = $85,400

Incremental revenue on further processing = $122,000 - $85,400 = $36,600

Further processing cost = $9,200

Financial advantage (Disadvantage) on further processing = $36,600 - $9,200 = $27,400

Solution 2:

Product X 15 should be processed further.