Question

Zycon has produced 10,000 units of partially finished Product A. These units cost $15,000 to produce, and they can be sold to another manufacturer for $20,000. Instead, Zycon can process the units further and produce finished Products X, Y, and Z. Processing further will cost an additional $22,000 and will yield total revenues of $35,000. Identify whether the item is relevant or irrelevant to the sell or process further decision.

Answer 1

Cost relevant or irrelevant for decision making to sell or process further

a. $15,000 already incurred is not relevant because this is sunk cost. This cannot be avoided or changed.

b. $20,000 selling price is relevant for decision making because this incremental revenue is generated if goods are sold semi-finished.

c. $22,000 additional selling price is for decision making because this cost is required for further processing and shall be incurred.

d. $35,000 revenue from processing is relevant for decision making because this incremental revenue is generated if goods are after further processing.