Question

Cobe Company has already manufactured 23,000 units of Product A at a cost of $20 per unit. The 23,000 units can be sold at this stage for $460,000. Alternatively, the units can be further processed at a $240,000 total additional cost and be converted into 5,000 units of Product B and 12,000 units of Product C. Per unit selling price for Product B is $101 and for Product C is $56. 1. Prepare an analysis that shows whether the 23,000 units of Product A should be processed further or not.

Answer 1

product A should be processed further.

Step-by-step explanation:

Given;

Manufacturing cost = $20 per unit

Number of units manufactured = 23,000

Selling cost of all units = $460,000

Further processing cost = $240,000

Number of units of product B produced = 5,000

Number of units of product C produced = 12,000

Per unit selling price of product B = $101

Per unit selling price of product C = $56

Total relevant cost for Product B and C = $240,000

Total revenue from selling Product B and C

= ( $101 × 5,000 ) + ( $56 × 12,000 )

= $505,000 + $672,000

= $1,177,000

Total income from Product B and C

= Total revenue from selling Product B and C - Relevant cost

= $1,177,000 - $240,000

= $937,000

The net incremental income

= Total income from Product B and C - income from sales without processing

= $937,000 - $460,000

= $477,000

Since, the net incremental income is positive the product A should be processed further.