Excel Company has costs of $100,000 up to split off. At split off, it has 1000 u
ID: 2367165 • Letter: E
Question
Excel Company has costs of $100,000 up to split off. At split off, it has 1000 units of Product A and 2000 units of Product B. Product A sells for $48 per unit and Product B sells for $62 per unit.
Excel is considering processing Product B to the next stage where it would then sell for $68 per unit. Added costs are $20,000. If they do this, what will be the effecton net income.
Net income will increase by $16,000.
Net income would decrease by $8000.
Net income would increase by $10,000.
Net income would increase by $4000.
Net income will increase by $16,000.
Net income would decrease by $8000.
Net income would increase by $10,000.
Net income would increase by $4000.
Explanation / Answer
Net income would decrease by $8000. is the right answer. Costs of Product B considering further processing = ($100000 x 2000 /3000) + $20000 = $86667 Costs of Product A = ($100000 x 1000/ 3000) = $33333 Total income After Further processing of B = ($48 x 1000 - $33333) + ($68 x 2000 - $86667) = $14667 + $49333 = $64000 Total income Before Further processing of B = ($48 x 1000 - $33333) + ($62 x 2000 - $66667) = $14667 + 57333 = $72000 The Effect on Net income is :Net income would decrease by $8000.
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