Exercise 23-8 Sell or process further LO A1 Cobe Company has already manufacture

Question

Exercise 23-8 Sell or process further LO A1 Cobe Company has already manufactured 28,000 units of Product A at a cost of $28 per unit. The 28,000 units can be sold at this stage for $700,000. Alternatively, the units can be further processed at a $420,000 total additional cost and be converted into 5,600 units of Product B and 11,200 units of Product C. Per unit selling price for Product B is $105 and for Product C is $70. 1. Prepare an analysis that shows whether the 28,000 units of Product A should be processed further or not Sell as is Process Further $ 700,000 Sales Relevant costs Costs to process further 420,000 420,000 840,000 Total relevant costs Income (loss) Incremental net income (or loss) if processed further Incremental income The company should process further

Explanation / Answer

sell as is process further working sales $700,000 $1,372,000 ($105 * 5600 B units) + ($70*11,200 units)=>$1,372,000 relevant costs costs to process further nil 420,000 Total relavant costs 420,000 income (loss) 700,000 952,000 incremental income (or loss) if processed further $252,000 incremental income The company should Process further

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