Question

Cobe Company has already manufactured 23,000 units of Product A at a cost of $15 per unit. The 23,000 units can be sold at this stage for $480,000. Alternatively, the units can be further processed at a $290,000 total additional cost and be converted into 5,000 units of Product B and 11,300 units of Product C. Per unit selling price for Product B is $107 and for Product C is $53. Prepare an analysis that shows whether the 23,000 units of Product A should be processed further or not.

Answer 1

Answer:

The 23,000 units of Product A shall be processed further for Product B and Product C

Explanation:

In the given case we will do an analysis of Profit.

Without further processing:

Sales = $480,000

Cost = 23,000 $\times$ $15 = $345,000

Profit = $135,000

In case of further processing

Sales = Product B + Product C

= 5,000 $\times$ $107 + 11,300 $\times$ $53

= $535,000 + $598,900 = $1,133,900

Cost = $345,000 + $290,000 = $635,000

Profit = $498,900

Since the profit in case of further processing is more than without processing further by $500,000 (635,000 - 135,000), thus Product B and Product C should be sold more than Product A.