Question

Holmes Company produces a product that can be either sold as is or processed further. Holmes has already spent $52,000 to produce 2,325 units that can be sold now for $81,500 to another manufacturer. Alternatively, Holmes can process the units further at an incremental cost of $265 per unit. If Holmes processes further, the units can be sold for $410 each. Compute the incremental income if Holmes processes further.

Answer 1

Answer:

incremental income= $255,625

Explanation:

Giving the following information:

Holmes has already spent $52,000 to produce 2,325 units that can be sold now for $81,500 to another manufacturer.

Process the units further at an incremental cost of $265 per unit. If Holmes processes further, the units can be sold for $410 each.

Sell as-is:

Net income= 81,500 - 52,000= $29,500

Continue processing:

Net income= 2,325*(410 - 265) - 52,000= $285,125

incremental income= 285,125 - 29,500= $255,625