Cobe Company has already manufactured 17,000 units of Product A at a cost of $15

Question

Cobe Company has already manufactured 17,000 units of Product A at a cost of $15 per unit. The 17,000 units can be sold at this stage for $460,000. Alternatively, the units can be further processed at a $220,000 total additional cost and be converted into 5,700 units of Product B and 11,500 units of Product C. Per unit selling price for Product B is $103 and for Product C is $52. 1. Prepare an analysis that shows whether the 17,000 units of Product A should be processed further or not. Process Further Sell as is Sales Relevant costs: Total relevant costs Income (loss) Incremental net income (or loss) if processed further The company should

Explanation / Answer

Answer

Note : 17,000 units already mnufactured, thus cost of manufacturing of $15 is a sunk cost therefore not a revelant cost

Incremental net income (or loss ) if processed further : $965,100 - $460,000 = $505,100 incremental net income

The company should process further the Product A

Sales as in ($) Process Further ($) Sales 460,000 (5,700 units *$103 )+(11,500 units * $52) = 11,85,100 Relevant Cost Additional cost to process further 220,000 Total Relevant Cost 220,000 Income (loss) 460,000 965,100

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