Question

Jensen Manufacturing Company makes a partially completed assembly unit that it sells for $45 per unit. Normally, 37,000 units are sold each year. Variable unit cost data on the assembly are as follows:

Direct material	$10
Direct labor	8
Variable manufacturing overhead	4

The company is now using only 70% of its normal capacity; it could fully use its normal capacity by processing the assembly further and selling it for $52 per unit. If the company does this, material and labor costs will each increase by $2 per unit and variable overhead will go up by $1 per unit. Fixed costs will increase from the current level of $160,000 to $215,000.

Prepare an analysis showing whether Jensen should process the assemblies further.
Use a negative sign with answer to only indicate a loss from processing assemblies further; otherwise do not use negative signs with your answers.

Sell of Process Further Differential Analysis
Differential revenue	Answer
Differential costs
Direct material	Answer
Direct labor	Answer
Variable overhead	Answer
Fixed costs	Answer
Additional income (loss) from processing further	Answer

Answer 1

Sell or Process Further Differential Analysis

PARTICULARS	AMOUNT (in $)
Differential Revenue ($52-$45)*37,000	259,000
Differential Costs
Direct Material (37,000*$2)	74,000
Direct Labor (37,000*$2)	74,000
Variable Overhead (37,000*$1)	37,000
Fixed Costs ($215,000-$160,000)	55,000
Additional Income / (loss ) from processing further	19,000

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