A company has a process that results in 36000 pounds of Product A that can be so
ID: 2513838 • Letter: A
Question
A company has a process that results in 36000 pounds of Product A that can be sold for $8 per pound. An alternative would be to process Product A further at a cost of $241200 and then sell it for $14 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action?
In cost-plus pricing, the target selling price is computed as
Sunland Company uses a 45% material loading charge and a labor rate of $15 per hour. How much will be charged on a job that requires 3.5 hours of work and $30 of materials?
The overall objective in the determination of a transfer price is to
-Process further, the company will be better off by $216000.Explanation / Answer
1. Sell now, the company will be better off by $25200
Profits if sold now = 36,000 pounds x $8 = $288,000
Profits if processed further = (36,000 x $14) - $241,200 = $262,800
Difference in favor of selling product A now = $288,000 - $262,800 = $25,200
2. Total unit cost + Desired ROI per unit.
3. $ 96
= ($30 x 1.45) + ($15 x 3.5)
4. Maximize the return to the whole company.
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