Cobe Company has already manufactured 28,000 units of Product A at a cost of $28
ID: 2570274 • Letter: C
Question
Cobe Company has already manufactured 28,000 units of Product A at a cost of $28 per unit. The 28,000 units can be sold at this stage for $700,000. Alternatively, the units can be further processed at a $420,000 total additional cost and be converted into 5,600 units of Product B and 11,200 units of Product C. Per unit selling price for Product B is $105 and for Product C is $70 1. Prepare an analysis that shows whether the 28,000 units of Product A should be processed further or not. Sell as is Process Further Sales Relevant costs Total relevant costs ncome (loss) Incremental net income (or loss) if processed further The company shouldExplanation / Answer
If Processed and then Sold
A.) Revenue (B 5,600 Units @ $105 and C 11,200 @ $70) = $ 13,72,000
B.) Cost -
Revenue forgone by not selling 28,000 Units of A and further processing = $ 700,000
Additional cost for Processing = $ 420,000
Total Cost = $ 1,120,000
Profit (Cost - Revenue) = $ 252,000
Thus it is advisable to further process 28,000 units of A to make B & C.