SALES Cobe Company has already manufactured 19,000 units of Product A at a cost

Question

SALES

Cobe Company has already manufactured 19,000 units of Product A at a cost of $25 per unit. The 19,000 units can be sold at this stage for $420,000. Alternatively, the units can be further processed at a $300,000 total additional cost and be converted into 5,800 units of Product B and 11,500 units of Product C. Per unit selling price for Product B is $102 and for Product C is $59. 1. Prepare an analysis that shows whether the 19,000 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

Explanation / Answer

Particulars SELL AS IS PROCESS FURTHER SALES Process further = 5800*102 + 11500*59            420,000.00        1,270,100.00 RELEVANT COSTS            475,000.00           475,000.00 COSTS TO PROCESS FURTHER           300,000.00 TOTAL RELEVANT COSTS            475,000.00           775,000.00 INCOME (LOSS)            (55,000.00)           495,100.00 INCREMENTAL NET INCOME (OR LOSS) IF PROCESSED           550,100.00 Product A should be processed further as it will result in gain of $550,100

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