Question

Cobe Company has already manufactured 16,000 units of Product A at a cost of $20 per unit. The 16,000 units can be sold at this stage for $490,000. Alternatively, the units can be further processed at a $290,000 total additional cost and be converted into 5700 units of Product B and 11,900 units of Product C. Per unit selling price for Product B is $105 and for Product C is $60. 1. Prepare an analysis that shows whether the 16,000 units of Product A should be processed further or not? Sell as is Process Further Sales Relevant costs Total relevant costs Income loss) Incremental net income (or loss) if processed further The company should

Answer 1

	Sell as is	Process further
Sales	$ 490,000	(5,700*$105)+(11,900*$60) = $1,312,500
Relevent costs
Costs to process further		$                                                                 290,000
Total relevent costs		$                                                                 290,000
Income (loss)	$ 490,000	$                                                              1,022,500
Incremental net income (or loss) if processed further		$1,022,500-$490,000 = $532,500

The company should process further

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