Cobe Company has already manufactured 21,000 units of Product A at a cost of $15

Question

Cobe Company has already manufactured 21,000 units of Product A at a cost of $15 per unit. The 21,000 units can be sold at this stage for $450,000. Alternatively, the units can be further processed at a $300,000 total additional cost and be converted into 5,400 units of Product B and 11,900 units of Product C. Per unit selling price for Product B is $104 and for Product C is $55. 1. Prepare an analysis that shows whether the 21,000 units of Product A should be processed further or not. Sell as in Process further Sales Relevant costs: Total relevant costs Income (loss) Incremental net income (or loss) if processed further The company should _______________________

Explanation / Answer

SOLUTION

Hence Cobe Company should further process Product A

Particulars Sell as is ($) Process further ($) Sales (21,000 units) 450,000 Sales - Product B (5400*104) 561,600 Product C (11900*55) 654,500 TOTAL SALES 450,000 1,216,100 Costs Product A (21000*15) 315,000 costs till futher processing (21000*15) 315,000 Processing costs - 300,000 TOTAL COSTS 315,000 615,000 NET INCOME (Sales - costs) 135,000 601,100 INCREMENTAL INCOME IF PROCESSED further 466,100

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