Cantrell Company has already manufactured 21,000 units of Product A at a cost of

Question

Cantrell Company has already manufactured 21,000 units of Product A at a cost of $25 per unit. The 21,000 units can be sold at this stage for $540,000. Alternatively, the units can be further processed at a $360,000 total additional cost and be converted into 4,700 units of Product B and 7,700 units of Product C. Per unit selling price for Product B is $74 and for Product C is $55. Calculate the Incremental Net Income (or loss) if processed further. Indicate whether the 21,000 units of Product A should be processed further or not.

Explanation / Answer

Senario 1 If We sell without processing

Sale 540,000 - 525,000 (21000*25) = 15,000 Profit

Senario 2 If We Process

Sales 986,300 - (525,000+360,000) = 101,300 Profit

Sales Product A (21,000-4,700-7,700) =8,600 *25 = 215,000

Sales Product B                                =4,700*74 = 347,800

Sales Product C                              =7,700*55 = 423,500

Total Sales                                                        = 986,300

We should process

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