Question

Exercise 23-8 Sell or process further LO A1 Cobe Company has already manufactured 28,000 units of Product A at a cost of $28 per unit. The 28,000 units can be sold at this stage for $700,000. Alternatively, the units can be further processed at a $420,000 total additional cost and be converted into 5,600 units of Product B and 11,200 units of Product C. Per unit selling price for Product B is $105 and for Product C is $70. 1. Prepare an analysis that shows whether the 28,000 units of Product A should be processed further or not.

Answer 1

Answer: Analysis to show wether 28,000 units of product A should be processed or not

Step-by-step explanation:

sell as is process further

sales 700000 1372000

relevant cost

cost to process further 0 420000

total relevant cost 0 420000

income 700000 952000

incremental income 252000

Answer 2

Cobe Company should process further as it will increase its net income by $252, 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.

Also note that all cost incurred up to the point of crush are irrelevant to the decision to process further

$

Revenue from Product B (5,600× 105) 588000

Revenue from Product C (11200× 70) 784000

1372000

Revenue from product A 700,000

Additional revenue 672000

Further processing cost (420,000)

Net income from further processing 252,000

Cobe Company should process further as it will increase its net income by $252, 000