Question

Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $53,000 per ton, one-fourth of which is allocated to product X15. Eight 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 $10 each, or processed further at a total cost of $7,100 and then sold for $13 each. Required: 1. What is the financial advantage (disadvantage) of further processing product X15

Answer 1

The financial advantage of processing further = $17,800

Step-by-step explanation:

1. Sale value if processed further = 8,300 x 13 = $107,900

Sale value if processed further = 8,300 x 10 = $83,000

Incremental revenue = Sale value if processed further - Sale value if processed further = $107,900 - $83,000

Incremental revenue = $24,900

Cost of further processing = $7,100

Incremental profit (loss) = Incremental revenue - Cost of further processing

Incremental profit (loss) = $24,900 - $7,100 = $17,800

Therefore, the financial advantage of processing further = $17,800