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Bogdan [553]
3 years ago
7

QS 23-10 Sell or process further LO A1 Holmes Company produces a product that can be either sold as is or processed further. Hol

mes has already spent $74,000 to produce 1,325 units that can be sold now for $79,500 to another manufacturer. Alternatively, Holmes can process the units further at an incremental cost of $280 per unit. If Holmes processes further, the units can be sold for $460 each. Compute the incremental income if Holmes processes further.
Business
1 answer:
Allushta [10]3 years ago
5 0

Answer:

It is more profitable to continue processing and sell the units for $460.

Explanation:

Giving the following information:

Sell as-is:

Selling price= $79,500

Continue processing:

Selling price= $460

Unitary incremental cost= $280

Units= 1,325

<u>The firsts $74,000 is a sunk cost, this means that the cost will remain the same in both options. It is irrelevant to the decision-making process.</u>

Sell as-is:

Effect on income= $79,500

Continue processing:

Effect on income= 1,325*(460-280)= $238,500

It is more profitable to continue processing and sell the units for $460.

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<u>December 31, 2017</u>

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Note Payable $3,897.80 (debit)

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Cash $4,512.19 (credit)

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Balance =  $0

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Interest Expense $214.87 (debit)

Note Payable $4,297.32 (debit)

Cash $4,512.19 (credit)

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