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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?

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Answer:

Wexpro, Inc. gains $11500 (59500-48000) by processing further X15. It is a financial advantage to compete with a more complex product. X15 should be processed further.

Explanation:

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.

60000*0,25=$15000

Seven thousand units of product X15 are produced from each ton of clypton. The units can be sold at the split-off point for $9 each.

Sales before split-off point:

Sales 7000u*$9= $63000

Material and processing cost= $15000

Total=$48000

The units can be processed further at a total cost of $9,500 and then sold for $12 each.

Sales after split-off point:

Sales= 7000*12=$84000

Split-off cost= $9500

Material and processing cost= $15000

Total= $59500

Wexpro, Inc. gains $11500 (59500-48000) by processing further X15. It is a financial advantage to compete with a more complex product. X15 should be processed further.

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