Problem 4 Sell or Process Further Wexpro Inc produces severa

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?

Solution

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