Cobe Company has already manufactured 28,000 units of Product A at a cost of $28

Question

Cobe Company has already manufactured 28,000 units of Product A at a cost of $28 per unit. The 28,000 units can be sold at this stage for $700,000. Alternatively, the units can be further processed at a $420,000 total additional cost and be converted into 5,600 units of Product B and 11,200 units of Product C. Per unit selling price for Product B is $105 and for Product C is $70 1. Prepare an analysis that shows whether the 28,000 units of Product A should be processed further or not. Sell as is Process Further Sales Relevant costs Total relevant costs ncome (loss) Incremental net income (or loss) if processed further The company should

Explanation / Answer

If Processed and then Sold

A.) Revenue (B 5,600 Units @ $105 and C 11,200 @ $70) = $ 13,72,000

B.) Cost -

Revenue forgone by not selling 28,000 Units of A and further processing = $ 700,000

Additional cost for Processing = $ 420,000

Total Cost = $ 1,120,000

Profit (Cost - Revenue) = $ 252,000

Thus it is advisable to further process 28,000 units of A to make B & C.

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