Question

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 1

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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