Question

Cobe Company has already manufactured 16,000 units of Product A at a cost of $25 per unit. The 16,000 units can be sold at this stage for $430,000. Alternatively, the units can be further processed at a $240,000 total additional cost and be converted into 5,400 units of Product B and 11,800 units of Product C. Per unit selling price for Product B is $103 and for Product C is $57.

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

					process
				Sell as is	further
Sales	(5400*103+11800*57)			430,000	1228800
Relevant costs
costs to process further					240,000
total relevant costs					240,000
income(loss)				430,000	988,800
incremetal net income (loss) if processed further					558,800	incremental income
the company should			process further