Cobe Company has already manufactured 20,000 units of Product A at a cost of $30

Question

Cobe Company has already manufactured 20,000 units of Product A at a cost of $30 per unit. The 20,000 units can be sold at this stage for $470,000. Alternatively, the units can be further processed at a $250,000 total additional cost and be converted into 5,700 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 $50. 1. Prepare an analysis that shows whether the 20,000 units of Product A should be processed further or not. Sell as is Process Further Sales Relevant costs Total relevant costs Income (loss) Incremental net income (or loss) if processed further The company should

Explanation / Answer

{[5700+$104] + [11600*$50]}

=592800 + 580000

= $1172800

Sell as is Process further sales $470000

{[5700+$104] + [11600*$50]}

=592800 + 580000

= $1172800

Relevant costs Cost to process further 250000 Total relevant cost 250000 Income $470000 $922800 Incremental net income ,if processed further (922800 - 470000) $452800 The company should Process further

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