Cobe Company has already manufactured 20000 units of Product

Cobe Company has already manufactured 20.000 units of Product A at a cost of $10 per unit. The 20,000 units can be sold at this stage for $470,000. Alternatively, the units can be further processed at a $240,000 total additional cost and be converted into 5,200 units of Product B and 11,200 units of Product C. Per unit selling price for Product B is $101 and for Product C is $59. Prepare an analysis that shows whether the 20,000 units of Product A should be processed further or not. Sell as is Process Further Sales Relevant costs: Total relevant costs Income (loss) Incremental net income (or loss) if processed further The company should

Solution

Sell as is Process further Sales 470000 1186000 Relevant costs: Processing costs 200000 200000 Further processing cost 240000 Total relevant costs 200000 440000 Income (loss) 270000 746000 Incremental net income if processed further 476000 The company should process further Product B Product C Total Number of units 5200 11200 Selling price per unit 101 59 Total Sales Value 525200 660800 1186000