Answer:
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.
Answer:
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.
