ANSWER:
Sell as is | Process further | |
---|---|---|
Sales | $490000 | $1224700 |
Relevant costs | ||
Additional cost to process further | $240000 | |
Total relevant costs | $240000 | |
Income (loss) | $490000 | $984700 |
CONCLUSION:
Net incremental income = $984700 - $490000 = $494700
therefore, 17,000 units of product A should be processed further.
NOTES:
17,000 units already manufactured, thus cost of manufacturing of $20 is a sunk cost therefore not a relevant cost.
Sales after processing further = (5400 x $110) + (11900 x $53)
= $594000 + $630700
= $1224700
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