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iPad 10:22 AM 88% D chrome for Mobil × ' D chrome for Mobil × ' D Chrome for Mobil ×Course Material f × Grano, D C httpsviewer.gcu.edu/PMHO9W 109 % 516 of 778 3. Should McKnight sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference berween the two alternatives. Continuing Problem P25-33 Making sell or process s further decisions This problem continues the Daniels Consulting situation from Problem P24-37 of Chapter 24. Daniels Consulting provides consulting services at an average price of $150 per hour and incurs variable costs of $75 per hour. Assume average fixed costs are $5,250 a month. Daniels has developed new software that will revolutionize billing for companies. Daniels has already invested $300,000 in the sofrware. It can market the software as is at $40,000 per client and expects to sell to 12 clients. Daniels can develop the software further, adding integration to Microsoft products at an additional development cost of $150,000. The additional development will allow Daniels to sell the software for $49,000 each but to 16 clients Should Daniels sell the software as is or develop it further Homgren's Accounting: The Managenial Chapters Eleventh Edtion, by Tracie L Miler Nobles, Brenda L. Mattison, and Ela Mae Matsumura. Published by Prentice Hall. Copyright © 2016 by Pearson Education, Inc.Explanation / Answer
Ans;
As the Daniels has already invested $300,000 in the software it is sunk cost and sunk cost is not relevant in decision making.
If Daniels Markets the product as it is then his revenue will be $40000*12= $480,000
If Daniels decided to develop further then he will have to incur the cost of $150,000 where as his revenue would be 15*$49000= $735,000
So the Net Revenue would be $735,000-$150,000
=585,000
So considering this Daniels should develop it furhter.
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