Question

E = ALT AaBbccdd AaBbceDd AaBb AaBbcc AaB ad 1 Normal 1 No Spac. Heading 1 Heading 2 Title A DES Paragraph 1.Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $60.000 per ton, one-fourth of which is allocated to product X15. Seven thousand units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $9 each, or processed further at a total cost of $9,500 and then sold for $12 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.Han Products manufactures 30,000 units of part 5-6 each year for use on its production line. At this level of activity, the cost per unit for part 5-6 is: Ditect materials $ 3.60 Direct labor 10.00 Variable manufacturing overhead 2.40 Pixed manufacturing overhead 9.00 Total cost per part $25.00 An outside supplier has offered to sell 30,000 units of part 5-6 each year to Han Products for $21 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental value of $80,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part 5-6 would continue even if part S-6 were purchased from the outside supplier. Required: What is the financial advantage (disadvantage) of accepting the outside supplier's offer?

Answer 1

Solution 1:

1.

Wexpro Inc.
Sales Revenue after further processing X15 ($12*7000)	$84,000
Sales at split off point ($9*7000)	$63,000
Increment revenue from Further processing	$21,000
Total incremental processing cost	$9,500
Financial advantage (disadvantage) of further processing X15	$11,500

2. Product X15 should be Processed further.

Solution 2:

Financial Advantage (Disadvantage) of accepting Outside supplier's offer
Particulars	Making Part S-6	Accepting Outsider's Offer to Buy Part S-6	Financial advantage (Disadvantage) of Accepting Outside Supplier's Offer
Purchase Price	$0.00	$6,30,000.00	-$6,30,000.00
Direct material	$1,08,000.00	$0.00	$1,08,000.00
Direct Labor	$3,00,000.00	$0.00	$3,00,000.00
Variable overhead	$72,000.00	$0.00	$72,000.00
Fixed Overhead	$2,70,000.00	$1,80,000.00	$90,000.00
Opportunity cost (Rental Value)	$80,000.00	$0.00	$80,000.00
Total Cost	$8,30,000.00	$8,10,000.00	$20,000.00

Financial advantage = $20,000