Question

Cobe Company has already manufactured 28,000 units of Product A at a cost of $28 per unit. The 28,000 units can be sold at this stage for $700,000. Alternatively, the units can be further processed at a $420,000 total additional cost and be converted into 5,600 units of Product B and 11,200 units of Product C per unit selling price for Product B is $105 and for Product C is $70.
Prepare an analysis that shows whether the 28,000 units of Product A should be processed further or not.

Sell as is Process Further
sales
Relevant Cost
Total relevant cost
Income (loss)
Incremental net income or loss
The company should

Answer 1

Answer:

                       Cobe Company

                       Analysis statement

sell as pocess further

Sales:

      product B (5,600*$105)                          $588,000

      product C ( 11,200*$70)                            784,000

                                                                        1,372,000

Relevant Cost :

manufacturing cost (28,000*28)  784,000

Additional cost                              420,000     1,204,000

Income                                                                 168,000

The incremental net income is $168,000.

Therefore, the company should process further before selling the product

Explanation: