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 $7,100 and then sold for $17 each.

It is more profitable to continue processing.

Explanation:

Giving the following information:

Material and processing costs total $55,000 per ton, one-fourth of which is allocated to product X15. 8,600 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 $7,100 and then sold for $17 each.

Unitary cost= (55,000*0.25)/8,600 units= 1.60 per unit

Pre-split-off point income= (14 - 1.6)*8,600= $106,640

Post-split-off point income:

7,100/8,600= 0.83

Post-split-off point income= (17 - 1.6 - 0.83)*8,600= $125,302

It is more profitable to continue processing.

The question is:

What is the financial advantage (disadvantage) of further processing the X15 product? Should the product be processed further or sold at the split-off point?

The answer is:

The financial advantages of further processing is $18,700 and product should be further process rather than sold at the split-off point.

Explanation:

We have the calculation of financial advantage (disadvantage) of further processing X15 product as followed: Revenue earn in case of further processing - Revenue sacrificed from not selling at split-off point - Further processing cost = 8,600 * $17 - 8,600 * $14 - $7,100 = $18,700.

=> Further processing X15 product will bring about financial advantage of $18,700.

=> As there is financial advantage under further processing, the product should be further processed rather than sold at the split-off point.

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