Question

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:Should product X15 be processed further or sold at the split-off point?

Answer 1

Processed further

Step-by-step explanation:

For taking the decision, first we have to determine the increase or decrease cost which is shown below:

Sales revenue if processed further (7,000 units × $12 per unit) $84,000

Less: Sales revenue at the split-off point (7,000 units × $9 per unit) -$63,000

Increase in revenue $21,000

Less: total cost for processing further -$9,500

Financial advantage $11,500

Since the amount is comes in positive, so it would be processed further rather sold at the split-off point