Question 9 (of 12) 9· 8.33 points Cobe Company has already manufactured 24,000 u

Question

Question 9 (of 12) 9· 8.33 points Cobe Company has already manufactured 24,000 units of Product A at a cost of $20 per unit. The 24.000 units can be sold at this stage for $430,000 total additional cost and be converted into 5,500 units of Pr selling price for Product B is $104 and for Product C is $57 f . Alternatively the units can be further processed at a $280,000 oduct B and 11,600 units of Product C. Per unt Prepare an analysis that shows whether the 24,000 units of Product A should be processed further or not. Sell as is Process further Sales Relevant costs: S 430,000$1,233 to process further (280,000) 480 000 (280,000) 473,200 Total relevant costs Income (loss) S 50,000S Incremental net income (or loss) if processed further 473.200 Incremental income The company should process further

Explanation / Answer

Lost existing sales revenue will be the opportunity cost of processing further and it is relevant cost, not the cost incurred already for producing the 24000 units.

Hence incremental income is 523200 on processing further.

The company should process further

Sales 430000 1233200 Relevant costs Costs to process further 280000 Lost sales revenue 430000 Total relevant costs 710000 Income/loss -50000 523200

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