Cobe Company has already manufactured 23,000 units of Product A at a cost of $20

Question

Cobe Company has already manufactured 23,000 units of Product A at a cost of $20 per unit. The 23,000 units can be sold at this stage for $490,000. Alternatively, the units can be further processed at a $230,000 total additional cost and be converted into 6,000 units of Product B and 11,400 units of Product C. Per unit selling price for Product B is $102 and for Product C is $54. 1. Prepare an analysis that shows whether the 23,000 units of Product A should be processed further or not.

Sell as is Process Further Sales Relevant costs: Costs to process further Total relevant costs Income (loss) Incremental net income (or loss) if processed further The company should

Explanation / Answer

Incremental net income (or loss) if processed further $507,600 ($997,600-$490,000) Incremental income

The company should process further

Sell as is Process further Sales $ 490,000 (6,000*$102)+(11,400*$54) = $1,227,600 Relevent costs Costs to process further $                                                                 230,000 Total relevent costs $                                                                 230,000 Income (loss) $ 490,000 $                                                                 997,600

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