Question

A company has a process that results in 24,000 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 $160,000 and then sell it for $14 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action?
A. Process further, the company will be better off by $144,000.
B. Sell now, the company will be better off by $160,000.
C. Sell now, the company will be better off by $16,000.
D. Process further, the company will be better off by $16,000.

Answer 1

Answer:

C. Sell now, the company will be better off by $16,000.

Explanation:

If the company sells product A now, it will get:

24,000*$8= $192,000

If the company process product A further, it will get:

24,000*$14= $336,000-160,000= $176,000

So, according to this, if the company sells product A now, it will receive $192,000 and if it processes the product, the gain will be of $176,000. Because of this, it should sell now as the company will be better off by $16,000.