Question

A company has already incurred $8,400 of costs in producing 6,600 units of Product XY. Product XY can be sold as is for $26 per unit. Instead, the company could incur further processing costs of $10 per unit and sell the resulting product for $31 per unit. Should the company sell Product XY as is or process it further?

Answer 1

Answer

The company should sell XY as it is because processing it further would reduce its income by $(33,000)

Explanation

A company should process further a product if the additional revenue from the split-off point is greater than than the further processing cost.

Product A                                                                $

Additional revenue ( 31 -26)×  6,600               33,000

Further processing cost (10×  6600)             ( 66,000)

Loss from further processing (100)               (33,000)