Finish attempt Sell or Process Further Jensen Manufacturing Company makes a part

Question

Finish attempt Sell or Process Further Jensen Manufacturing Company makes a partially completed assembly unit that it sells for $36 per unit. Normally, 42,000 units are sold each year. Variable unit cost data on the assembly are as follows Direct material Direct labor Variable manufacturing overhead 4 $10 company is now using only 70% of its normal capacity; t could fully use its normal capacity by processing the assembly further and selling it for $43 per unit. If the company does this, material and labor costs will each increase by $2 per unit and variable overhead will go up by $1 per unit. Fixed costs will increase from the current level of $160,000 to $220,000 Prepare an analysis showing whether Jensen should process the assemblies further. Use a negative sign with answer to only indicate an income loss from processing assemblies further; otherwise do not use negative signs with your answers Sell of Process Further Differential Analysis Differential revenue 774,000 x Differential costs Direct materia 216,000 | ? Direct labor 180,000 Variable overhead 90,000 1 x Fixed costs 60,000 ? Additional income (loss) from processing further 228,000 x

Explanation / Answer

Differential analysis :

Differential revenue (42000*30%*43) 541800 Differential cost Direct material (12600*12) 151200 Direct labour (12600*10) 126000 Variable overhead (12600*5) 63000 Fixed cost 60000 Additional income (loss) From processing further 141600

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