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?

Answer 1

Answer 1	The financial advantage of further processing product X15	$ 10,200
Answer 2	Should product X15 be processed further or sold at the split-off point?	Yes

Detailed workings

Calculation of extra advantage from further processing
	Qty	Per Unit	Total
Extra Revenue from further processing	6300	$3	$        18,900
Less: Extra cost of material for further processing			$          8,700
Advantage from further processing			$        10,200

Extra revenue from one unit = $20-$17 = $3

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