Question

Holmes Company produces a product that can be either sold as is or processed further. Holmes has already spent $98,000 to produce 1,725 units that can be sold now for $71,500 to another manufacturer. Alternatively, Holmes can process the units further at an incremental cost of $265 per unit. If Holmes processes further, the units can be sold for $445 each. Compute the incremental income if Holmes processes further. Process Sell as is Further Incremental Amount Sales Additional processing costs Income (loss) The company should:

Answer 1

Solution 1:

VK УИ Holmes Company Sell As is Process Further Incremental Amount $71,500 $767,625 $696,125 $0 $457,125 $457,125 $71,500 $310,500 $239,000 Sales Additional Processing C Income (Loss) $767 31 The company should : Process Further 33 34 35 59 60 61 et748 Sheet383 (4) ) Sheet738 Sheet750 Sheet754

Solution 2:

Incremental cost to make Relevant amount per Relevant Fixed | Total relevant cost costs $5.15 $234,325 $77,000 $77,000 unit Variable cost Fixed cost 7 8 9 Total Incremental cost to make $311,325 10 11 Incremental cost to Buy Relevant amount per Relevant Fixed unit cost $3.50 L $0 Total relevant costs $159,250 $0 Purchase cost Fixed cost 14 15 16 Total Incremental cost to Buy $159,250 17 The company should manufacture or buy from the outside supplier: Buy 19 21 23 24 25 26 28 35 37 41 42 43 14 et967 ) Sheet968 ) Sheet969 ) Sheet970 Sheet972

Solution 3:

TR Rework Sale as scrap $44,800 Incremental Income Sales of scrap units (16000*$2.80) Sales of reworked units (16000*$8.70) Cost to rework units (16000*$4.60) Opportunity cost of not making new units (16000*($8.70 - $5.90)] $139,200 $73,600 $44,800 11 12 Incremental income (loss) $44,800 $20,800 14 The company should: Sale as scrap 15 16 17 18 19 20 22 27 28 29 30 32 33 34 35 36 37 38 39 40 41 | 42 43 44 46 47 49 50 51 52 53 54 et1110 Sheet1112 Sheet1100 Sheet1085 Sheet1109