Question

Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $55,000 per ton, one-fourth of which is allocated to product X15. Eight thousand six hundred units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $14 each, or processed further at a total cost of $7100 and then sold for $17 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?

Answer 1

It is more profitable to continue processing and sell the units for a higher price.

Step-by-step explanation:

Giving the following information:

Material and processing= 55,000*0.25= $13,750

Units produced= 8,600

Option 1:

Sell for $14 now

Option 2:

Further processing for $7,100 and sell for $17

We need to determine which option is more profitable:

Option 1:

Effect on income= 8,600*14 - 13,750= $106,650

Option 2:

Effect on income= 8,600*17 - 7,100 - 13,750= $125,350

It is more profitable to continue processing and sell the units for a higher price.