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.

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. Six thousand one 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 $9,200 and then sold for $20 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?

Explanation

1.

The financial advantage of further processing X15 is computed as follows:

Sales value after further processing (6,100 units × $20 per unit)	$	122,000
Sales value at the split-off point (6,100 units × $14 per unit)		85,400
Incremental revenue from further processing		36,600
Cost of further processing		9,200
Financial advantage of further processing	$	27,400

The $55,000 cost incurred up to the split-off point is not relevant in a sell or process further analysis. 

2.

Yes, the company should process product X15 beyond the split-off point.

Thanks