Question

Holmes Company produces a product that can be either sold as is or processed further. Holmes has already spent $60,000 to produce 1,675 units that can be sold now for $97,500 to another manufacturer. Alternatively, Holmes can process the units further at an incremental cost of $290 per unit. If Holmes processes further, the units can be sold for $415 each. Should Holmes sell the product now or process it further.

Please answer in the format provided below
Sales As Is Process further Incremental Accounting
Sales $97,500
Additional Process costs
Total $97,500

Answer 1

Holmes should sell process the product further, because the profit if process further is higher than sell product now.

Step-by-step explanation:

Net profit if sell product now is $37,500 ( = sales to another manufacturer $97,500 – already spent $60,000)

Sales as in process further/ Incremental Accounting

Sales: $695,125 (=$415 x 1,675 units)

Additional Process costs: $485,570 (=$290 x 1,675 units)

Net profit if process further = total sales $695,125 – already spent $60,000 – additional process cost $485,570 = $149,555, higher than profit $37,500 if sell now.