Question

Cobe Company has already manufactured 18,000 units of Product A at a cost of $15 per unit. The 18,000 units can be sold at this stage for $470,000. Alternatively, the units can be further processed at a $240,000 total additional cost and be converted into 5,900 units of Product B and 11,600 units of Product C. Per unit selling price for Product B is $104 and for Product C is $52. 1. Prepare an analysis that shows whether the 18,000 units of Product A should be processed further or not

Answer 1

Therefore the company should process further the Product A

Step-by-step explanation:

The Preparation of analysis that shows whether the 18,000 units of Product A should be processed further or not is shown below:-

Sales Process Further

Sales $470,000 $1,216,800

(5,900 × $104) + (11,600 × $52)

Relevant Cost

Additional cost to

process further $240,000

Total Relevant Cost $240,000

Income (loss) $470,000 $976,800

Incremental net income (or loss ) if processed further = $976,800 - $470,000 = $506,800 Incremental net income.

Therefore the company should process further the Product A