Question

Cobe Company has already manufactured 24,000 units of Product A at a cost of $15 per unit. The 24,000 units can be sold at this stage for $410,000. Alternatively, the units can be further processed at a $250,000 total additional cost and be converted into 5,300 units of Product B and 11,000 units of Product C. Per unit selling price for Product B is $108 and for Product C is $53.

1. Prepare an analysis that shows whether the 24,000 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

Answer 1

Number of units of Product B = 5,300

Number of units of Product C = 11,000

Selling price of product B = $108

Selling price of product C = $53

Sales revenue from processing further = Number of units of Product B x Selling price of product B + Number of units of Product C x Selling price of product C

= 5,300 x 108 + 11,000 x 53

= 572,400+583,000

= $1,155,400

	Sell as is	Process Further
Sales	410,000	1,155,400
Relevant costs:
Cost of making	-360,000	-360,000
Cost of further	0	-250,000
Total relevant costs	-360,000	-610,000
Income (loss)	50,000	545,400	495,400
Incremental net income (or loss) if processed further			$495,400
The company should	Process Further