Question

A company has a process that results in 34000 pounds of Product A that can be sold for $8 per pound. An alternative would be to process Product A further at a cost of $227800 and then sell it for $14 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action?

Answer 1

After calculating, we get to know that the Product A should be sell now because, it show a difference of $23,800 through which company can earn more in the future. As the company will be better off by $23,800

Step-by-step explanation:

For calculation, following things need to be considered which is shown below:

1. Product A process costing = Pounds × Per pound price

= 34,000 × $8

= $272,000

2. Product A costing after selling = Pounds × sale price per pound

= 34,000 × $14

= $476,000

3. Difference of costing :

= Product A costing after selling - Product A process costing

= $476,000 - $272,000

= $204,000

4. Invested amount = $227,800

5. Actual Difference = Invested amount - costing difference

= $227,800 - $204,000

= $23,800

After calculating, we get to know that the Product A should be sell now because, it show a difference of $23,800 through which company can earn more in the future. As the company will be better off by $23,800