Question

Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $71,000 per ton, one-fourth of which is allocated to product X15. Six thousand five 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 $8,800 and then sold for $22 each. Required: 1. What is the financial advantage (disadvantage) of further processing product X15

Answer 1

Financial advantage of further processing =$23,700

Step-by-step explanation:

A company should process a product further if the additional revenue from the split-off point is greater than than the further processing cost.

Also note that all cost incurred up to the split-off point are irrelevant to the decision to process further .

$

Additional sales revenue from further processing

($22-$17)× 6,500 32,500

Less further processing cost (8,800)

Financial advantage 23,700

Financial advantage of further processing =$23,700