Question

Tamtung Electronics has decided to discontinue its 45" flat screen television production in favor of producing 4D televisions. They currently have 500 units in work in process. They can sell the units as is for $500 each or they can complete processing and sell them for $1,000. The following information is available (costs are given per unit).
	Costs Incurred to Date		Costs per Unit to Complete
Direct Materials	300		200
Labor	200		100		500
Variable Overhead	100		100
Fixed Overhead	200		-
	800		400
Should Tamtung sell as is or process further? Prepare your solution in good form.
Tamtung Electronics
Incremental Analysis of Additional Processing
	As Is		Additional Processing		Incremental Revenue/ (Costs)
Revenue	500		1,000		500
Less:
Material	300		300		-
Labor	200		200		-
Variable overhead	100		100		-
Fixed overhead	200		200		-
	800	-	800		-
Additional processing costs
Material	-		200		200
Labor	-		100		100
Variable overhead	-		100		100
			400		400
Gain (loss) per unit	(300)		(200)		100

Answer 1

Per unit Particulars Work in process sold as is Goods sold after completion 1,000 Revenue Cost already incurred Direct Material Labor Variable Overhead Fixed Overhead 500 300 200 100 200 300 100 100 200 0 Cost to be incurred for completion 1Material 2 Labor 3 Variable Overhead 200 100 100 5 Total Costs 6 Gain(loss) per unit (Revenue Cost) 7 No. of Units 8 Total Gain(loss) (Gain (loss)*No. of units) 800 300) 500 (1,50,000) 1,100 (100) 500 (50,000) 0 Notes: 11) When the company decides to sell the goods as is, the loss it will incur is $150,000 22) If the company decides to sell the goods after completion, it will incur a loss of $50,000 3 3) From the above, we can observe that in both the cases, the company will incur loss only. However, the amount of loss is minimum when the goods are sold after completion. 4 4) Thus, the company should sell the goods after completion only