Question

Cobe Company has already manufactured 17,000 units of Product A at a cost of $20 per unit. The 17,000 units can be sold at this stage for $410,000. Alternatively, the units can be further processed at a $240,000 total additional cost and be converted into 5, 800 units of Product B and 11, 400 units of Product C. Per unit selling price for Product B is $107 and for Product C is $52.

Prepare an analysis that shows whether the 17,000 units of Product A should be processed further or not.
Sell as is ProcessFurther
Sales
Relevant costs:
Total relevant costs
Income (loss)
Incremental net income (or loss) if processed further
The company should

Answer 1

differential analysis:

No further process Process further Differential

amount

Sales revenue $410,000 $1,213,400 $803,400

Production costs ($340,000) ($580,000) ($240,000)

Operating income $70,000 $633,400 $563,400

The company should process further and sell products B and C because its operating income will increase by $563,400.