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

Question

Cobe Company has already manufactured 20,000 units of Product A at a cost of $20 per unit. The 20,000 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 5,600 units of Product B and 11,700 units of Product C. Per unit selling price for Product B is $108 and for Product C is $56.

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

An analysis that shows whether the 20,000 units of Product A should be processed further or not. Sell as is Process further Sales - Product A $490,000.00 - Product B $604,800.00 - Product C $655,200.00 Total Sales $490,000.00 $1,260,000.00 Relevant cost - Manufacturing cost $400,000.00 $400,000.00 - Additional cost $300,000.00 Total Relevant cost $400,000.00 $700,000.00 Income / (loss) $90,000.00 $560,000.00 Incremental net income (loss) if processed further $470,000.00 The compnay should further process Product A.

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