Question

# Cobe Company has already manufactured 20,000 units of Product A at a cost of \$25 per...

Cobe Company has already manufactured 20,000 units of Product A at a cost of \$25 per unit. The 20,000 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 5,900 units of Product B and 11,400 units of Product C. Per unit selling price for Product B is \$108 and for Product C is \$59.

1. Prepare an analysis that shows whether the 20,000 units of Product A should be processed further or not?

Answer - Product A should be processed further as there is Incremental income of \$649,800

Explanation:

Particulars Sell Process further
Sales \$410,000 \$1,309,800
Relevant cost
Process further cost \$0 \$250,000
Less: Total relevant cost \$0 \$250,000
Income    \$410,000 \$1,059,800
Incremental income \$649,800

The \$1,309,800 is come from
= 5,900 units × \$108 + 11,400 units × \$59
= \$637,200 + \$672,600
= \$1,309,800

Therefore, the company should process further

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