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 $490,000. Alternatively, the units can be further processed at a $300,000 total additional cost and be converted into 5,400 units of Product B and 11,400 units of Product C. Per unit selling price for Product B is $104 and for Product C is $56.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

Income (loss) $490,000 $928,000

Net incremental income= $438,000

17,000 units of product A should be processed further.

Step-by-step explanation:

Preparation of analysis that shows whether 17,000 units of Product A should be processed further or not.

Sell Process further

Sales $490,000 $1,228,000

Relevant costs

Additional cost to process further $300,000

Total relevant costs $300,000

Income (loss) $490,000 $928,000

Calculation for sales after processing further

Sales after processing further = (5,400 x $104) + (11,900 x $56)

Sales after processing further= $561,600 + $666,400

Sales after processing further= $1,228,000

Calculation for Net incremental income

Net incremental income = $928,000 - $490,000

Net incremental income= $438,000

Therefore 17,000 units of product A should be processed further.