Holmes Company produces a product that can either be sold as

Holmes Company produces a product that can either be sold as is or processed further. Holmes has already spent $78,000 to produce 1,675 units that can be sold now for $85,500 to another manufacturer. Alternatively, Holmes can process the units further at an incremental cost of $290 per unit. If Holmes processes further, the units can be sold for $430 each. Compute the incremental income if Holmes processes further. Sell as is Process Further Incremental Amount Sales Additional processing costs Income (loss) The company should:

Solution

Incremental analysis :

	Sell as is	Process further	Incremental amount
Sales	85500	1675*430 = 720250	634750
Additional processing cost	0	1675*290 = 485750	-485750
Income (loss)	85500	234500	149000
The company should	Process further