Question

Cobe Company has already manufactured 18,000 units of Product A at a cost of $15 per unit. The 18,000 units can be sold at this stage for $470,000. Alternatively, the units can be further processed at a $240,000 total additional cost and be converted into 5,900 units of Product B and 11,600 units of Product C. Per unit selling price for Product B is $104 and for Product C is $52. 1. Prepare an analysis that shows whether the 18,000 units of Product A should be processed further or not

Answer 1

Answer:

Therefore the company should process further the Product A

Explanation:

The Preparation of  analysis that shows whether the 18,000 units of Product A should be processed further or not is shown below:-

                           Sales           Process Further

Sales               $470,000          $1,216,800

                                       (5,900 × $104) + (11,600 × $52)

Relevant Cost

Additional cost to

process further                            $240,000

Total Relevant Cost                     $240,000

Income (loss)    $470,000           $976,800

Incremental net income (or loss ) if processed further =  $976,800 - $470,000 = $506,800 Incremental net income.

Therefore the company should process further the Product A