Question

Cobe Company has already manufactured 21,000 units of Product A at a cost of $15 per unit. The 21,000 units can be sold at this stage for $450,000. Alternatively, the units can be further processed at a $290,000 total additional cost and be converted into 5,800 units of Product B and 12,000 units of Product C. Per unit selling price for Product B is $105 and for Product C is $50.

Prepare an analysis that shows whether the 21,000 units of Product A should be processed further or not.
Sell as in Process further Sales Relevant costs:
Total relevant costs Income (loss) Incremental net income (or loss) if processed further
The company should _______________________

Answer 1

Answer and Explanation:

The computation is shown below;

Particulars Sell process further

sales $450,000 $1,209,000

Relevant cost

Process further cost $0 $290,000

Less: Total relevant cost $0 $290,000

Income $450,000 $629,000

Incremental income $179,000

The $1,372,000 is come from

= 5,800 units × $105 + 12,000 units × $50

= $609,000 + $600,000

= $1,209,000

Hence, the company should process further