Question

Walters manufactures a specialty food product that can currently be sold for $22 per unit and has 20,000 units on hand. Alternatively, it can be further processed at a cost of $12,000 and converted into 12,000 units of Deluxe and 6,000 units of Super. The selling price of Deluxe and Super are $30 and $20, respectively. The incremental net income of processing further would be:

Answer 1

$28,000

Step-by-step explanation:

The computation of incremental net income is shown below:-

Deluxe = 12,000 × $30

= $ 360,000

Super = 6,000 × $20

= $120,000

Total sales value = Deluxe + Super

= $ 360,000 + $120,000

= $480,000

Deduct amount = Total sales value - Further processing cost

= $480,000 - $12,000

= $468,000

Incremental net income after further processing = Deduct amount - sales value before further processing

= $468,000 - (20,000 × $22)

= $28,000

So, for computing the incremental net income of processing further we simply applied the above formula.