Cobe Company has already manufactured 25,000 units of Product A at a cost of $10

Question

Cobe Company has already manufactured 25,000 units of Product A at a cost of $10 per unit. The 25,000 units can be sold at this stage for $470,000. Alternatively, the units can be further processed at a $290,000 total additional cost and be converted into 5,700 units of Product B and 11,000 units of Product C. Per unit selling price for Product B is $101 and for Product C is $57 1. Prepare an analysis that shows whether the 25,000 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 $ 470,000 Income (loss) Incremental net income (or loss) if processed further The company should

Explanation / Answer

Analysis showing product should be process further or not is as shown below:

Sell as is Process Further Sales 470,000              5,700*101 + 11,000*57 1,202,700 Relevant Costs: Cost to process further 0 290,000 Total relevant costs 0 290,000 Income (loss) 470,000 912,700 Incremental net income or (loss) if processed further 912,700 Company should process Prodcut A further to product B and product C.

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