Question

Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $80,000 per ton, one-fourth of which is allocated to product X15. Seven thousand seven hundred units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $13 each, or processed further at a total cost of $8,300 and then sold for $19 each. Required: 1. What is the financial advantage (disadvantage) of further processing product X15

Answer 1

Financial advantage $33,700

Step-by-step explanation:

$

Sales at the split-off point ($13 × 7,000) 91,000

Sales after the split off point ($19 × 7,000) 133,000

Additional sales revenue 42,000

Further processing cost (8,300)

Financial advantage 33,700

Financial advantage $33,700

The joint costs of $80,000 is irrelevant for this decision. Whether or not the product is processed further they had already been incurred.

Answer 2

It is more convenient to continue processing. Income will increase by $37,900

Step-by-step explanation:

Giving the following information:

7,700 units of product X15 are produced from each ton of clypton.

The units can either be sold at the split-off point for $13 each or processed further at a total cost of $8,300 and then sold for $19 each.

Sell now:

Effect on income= 7,700*13= 100,100

Continue processing:

Effect on income= 7,700*19 - 8,300= 138,000

It is more convenient to continue processing. Income will increase by $37,900