Question

Moreland Clean Company spent $8,000 to produce Product 89, which can be sold as is for $10,000, or processed further incurring additional costs of $3,000 and then be sold for $14,000. Which amounts are relevant to the decision about Product 89?

Select one:
a. $8,000, $10,000, and $14,000
b. $8,000, $3,000, and $14,000
c. $10,000, $3,000, and $14,000
d. $8,000, $10,000, $3,000 and $14,000

Answer 1

• Sale value as of now = $10.000

• Further processing cost = $3.000

• Sales value after further processing = $14.000

Step-by-step explanation:

Step 1. Given information.

The following are the relevant amounts:

• Sale value as of now = $10.000

• Further processing cost = $3.000

• Sales value after further processing = $14.000

As exception:

• Amount $8000 is irrelevent for decision since it has already been incurred. Its shunk cost. Whether product is further processed or not its not going to make any impact on profit/loss.

Step 2. Formulas needed to solve the exercise.

Profit = sales value after further processing - sales value of now - further processing cost.

Step 3. Calculation and Step 4. Solution.

Profit = (14.000-10.000)-3.000 = 1.000

Further processing will give extra $1000 profit.

Hence, its should be processed further.