Sell er Process Further Jensen Manufacturing Company makes a partialy completed

Question

Sell er Process Further Jensen Manufacturing Company makes a partialy completed assembly unit chat it sells for $41 per unit. Normaly, 41,000 units are sold each year Variable unit cost data on the assembly are as follows cost data on the assembly are as follows Direct labor The company is now usingonly 70% of its no mal capacity, could fully use its normal capacity by processing the assembly further and seling it for S48 per unit. If the company does this, material and labor costs wil each increase by $2 per unit end veriable overheed will go up by 51 per unit Fixed cos will increase from the current level of $160,000 to $215,000 Prepare an analysis showing whether lensen should process the assemblies further Use a negative sign with answer to only indicate an income loss from processing essemblies further, ocherwise do not use negative signs with your Sell of Process Further Differential Analysis Direct labor 5 6 8

Explanation / Answer

Sell of Process Further Differencial Analysis Per unit for 41000 units Differencial Revenue $7.00 $287,000 Differencial costs Direct material $2.00 $82,000 Direct labour $2.00 $82,000 Variable overheads $1.00 $41,000 Fixed cost $1.34 $55,000 Addittional income (loss) from processing further $0.66 $27,000 Processing further will generate addittional income of $27000, thus it is recommended to process further. Differencial fixed cost = $215000-$160000 = $55000

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