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 19,000 units of Product A at a cost of $25 per unit. The 19,000 units can be sold at this stage for $400,000. Alternatively, the units can be further processed at a $220,000 total additional cost and be converted into 5,800 units of Product B and 11,500 units of Product C. Per unit selling price for Product B is $101 and for Product C is $50 1. Prepare an analysis that shows whether the 19,000 units of Product A should be processed further or not Sell as is Process Further Sales Relevant costs Manufacturing costs incurred to date Costs to process further Total relevant costs Income (loss) Incremental net income (or loss) if processed further The company should

Explanation / Answer

Prepare incremental analysis :

Sell as is Process further Sales 400000 1160800 Relevant costs Manufacturing costs incurred to date -475000 -475000 Cost to process further -220000 Total relevant cost -475000 -695000 Income (loss) -75000 465800 Incremental net income (or loss) if processed further 540800 The company should Processed further

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