Question

Kobe Company has manufactured 200 partially finished cabinets at a cost of $100,000. These can be sold as is for $120,000. Instead, the cabinets can be stained and fitted with hardware to make finished cabinets. Further processing costs would be $24,000, and the finished cabinets could be sold for $160,000. If Kobe Company processes the cabinets further, incremental income is:

Answer 1

If Kobe Company processes the cabinets further, incremental income is $16,000.

What is incremental income?

The incremental income represents the additional gain that Kobe Company obtains from further processing of the partially finished cabinets.

Data and Calculations:

Cost of 200 partially finished cabinets = $100,000

Sales revenue from the partially finished cabinets = $120,000

Income without further processing = $20,000 ($120,000 - $100,000)

Cost of further processing = $24,000

Sales revenue from further processing = $160,000

Total income after further processing = $36,000 ($160,000 - $100,000 - $24,000)

Incremental income = $16,000 ($36,000 - $20,000)

Thus, if Kobe Company processes the cabinets further, incremental income is $16,000.

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