Question

Listmann Corp. processes four different products that can either be sold as is or processed further. Listed below are sales and additional cost data:
Product Sales Value without Processing Additional Costs Sales Value after processing
Premier $1,350 $900 $2,700
Deluxe 450 225 630
Super 900 450 1,800
Basic 90 45 180

Which product(s) should not be processed further?

Answer 1

Answer:

The product Deluxe sgould not be processed further.

Explanation:

Giving the following information:

Sales - Value without Processing - Additional Costs - Sales Value after processing

Premier: $1,350 - $900 - $2,700

Deluxe: 450 - 225 - 630

Super: 900 - 450 - 1,800

Basic: 90 - 45 - 180

We need to calculate the contribution margin of each product before and after processing.

Premier:

Before= 1,350

After= 2,700 - 900= $1,800

It is more profitable to continue processing.

Deluxe:

Before= 450

After= 630 - 225= $405

It is more profitable to sell before processing.

Super:

Before= 900

After= 1,800 - 450= $1,350

It is more profitable to continue processing.

Basic:

Before= 90

After= 180 - 45= 135

It is more profitable to continue processing.