Holmes Company produces a product that can either be sold as is or processed fur

Question

Holmes Company produces a product that can either be sold as is or processed further. Holmes has already spent $78,000 to produce 1,675 units that can be sold now for $85,500 to another manufacturer. Alternatively, Holmes can process the units further at an incremental cost of $290 per unit. If Holmes processes further, the units can be sold for $430 each. Compute the incremental income if Holmes processes further. Sell as is Process Further Incremental Amount Sales Additional processing costs Income (loss) The company should:

Explanation / Answer

Incremental analysis :

Sell as is Process further Incremental amount Sales 85500 1675*430 = 720250 634750 Additional processing cost 0 1675*290 = 485750 -485750 Income (loss) 85500 234500 149000 The company should Process further

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