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A company has a process that results in 36000 pounds of Product A that can be so

ID: 2513838 • Letter: A

Question

A company has a process that results in 36000 pounds of Product A that can be sold for $8 per pound. An alternative would be to process Product A further at a cost of $241200 and then sell it for $14 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action?

In cost-plus pricing, the target selling price is computed as

Sunland Company uses a 45% material loading charge and a labor rate of $15 per hour. How much will be charged on a job that requires 3.5 hours of work and $30 of materials?

The overall objective in the determination of a transfer price is to

-Process further, the company will be better off by $216000.

Explanation / Answer

1. Sell now, the company will be better off by $25200

Profits if sold now = 36,000 pounds x $8 = $288,000

Profits if processed further = (36,000 x $14) - $241,200 = $262,800

Difference in favor of selling product A now = $288,000 - $262,800 = $25,200

2. Total unit cost + Desired ROI per unit.

3. $ 96

= ($30 x 1.45) + ($15 x 3.5)

4. Maximize the return to the whole company.

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