Question

A company has a process that results in 12,000 pounds of Product A that can be sold for $8 per pound. An alternative would be to process Product A further at a cost of $80,000 and then sell it for $14 per pound. Should management sell Product A now or should Product A be processed further and then sold?

Answer 1

Answer:

The correct answer is management should sell Product A now.

Explanation:

According to the scenario, computation of the given data are as follows:

Total production = 12,000 pounds

Sell price = $8 per pound

If process further, Cost = $80,000

Selling price = $14 per pound

So, If we sell the product without further process, than

Total sale value = 12,000 × $8 = $96,000

And, if we sell the product after further processing, then

Total sale value = (12,000 × $14) - $80,000

= $88,000.

As, sales value is more in selling the product without further process, so management should sell the product without further processing it.