Problem 4: Sell or Process Further Wexpro, Inc., produces several products from
ID: 2391840 • Letter: P
Question
Problem 4: Sell or Process Further Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $60,000 per ton, one-fourth of which is allocated to product X15. Seven thousand units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $9 each, or processed further at a total cost of $9,500 and then sold for $12 each. Required: Should product X15 be processed further or sold at the split-off point?Explanation / Answer
Incremental analysis :
Company should process further product X15
Sale revenue after further processing (7000*12) 84000 Sale revenue at split off point (7000*9) 63000 Incremental revenue 21000 Less: Incremental cost -9500 Incremental profit (loss) 11500