Final answer:
The company should not process the product further as the initial manufacturing yields a higher profit. A cost-benefit analysis reveals that additional processing leads to a decrease in profit from $2,000 to $1,000.
Step-by-step explanation:
The manufacturing company is facing a decision related to incremental cost analysis, a concept in managerial accounting that helps determine the financial advantage or disadvantage of choosing one option over another. To resolve this, they could perform a cost-benefit analysis to understand the potential financial outcome of further processing the product.
Currently, without additional processing, the company makes a profit of $7,000 - $5,000 = $2,000 for producing 1,000 units. If they choose to process the product further, the additional processing costs will be $4,000, making their total cost $9,000 ($5,000 initial + $4,000 additional). However, the refined product would sell for $10,000, giving a profit of $1,000 ($10,000 - $9,000).
Comparing the profits, without additional processing the profit is $2,000, whereas with additional processing the profit decreases to $1,000. Therefore, the company should not proceed with the additional processing as it reduces the overall profit.