Question

A company has already incurred $5,000 of costs in producing 6,400 units of product xy. product xy can be sold as is for $33 per unit. instead, the company could incur further processing costs of $8 per unit and sell the resulting product for $39 per unit. should the company sell product xy as is or process it further?

Answer 1

The company should sell product xy as it is and should not process it further.

Given:
Original Incurred cost of $5,000
No. of units is 6,400
Price per unit is $33

Processed product
No. of units is 6,400
Costs for further processing is $8/unit
New price per unit is $39

First, know the total costs
Original: $5,000
Processed: 6,400 x $8 = $51,200

Next, find the sales revenue for the original and processed product
Original: $33 x 6,400 = $211,200
Processed: $39 x 6,400 = $249,600

Then, get the net profit for the original and processed product
Original: $211,200 - $5,000 = $206,200
Processed: $249,600 - $51,200 = $198,400

With the data provided, you can find out that the net profit is higher on the original/unprocessed product compared to the processed product even if the selling price and revenue is much higher.