Question

A company has already incurred $8,400 of costs in producing 6,600 units of Product XY. Product XY can be sold as is for $26 per unit. Instead, the company could incur further processing costs of $10 per unit and sell the resulting product for $31 per unit. Should the company sell Product XY as is or process it further?

Answer 1

The company should sell XY as it is because processing it further would reduce its income by $(33,000)

Step-by-step explanation

A company should process further a product if the additional revenue from the split-off point is greater than than the further processing cost.

Product A $

Additional revenue ( 31 -26)× 6,600 33,000

Further processing cost (10× 6600) ( 66,000)

Loss from further processing (100) (33,000)