Question

Cobe Company has already manufactured 21,000 units of Product A at a cost of $30 per unit. The 21,000 units can be sold at this stage for $480,000. Alternatively, the units can be further processed at a $260,000 total additional cost and be converted into 5,700 units of Product B and 11,900 units of Product C. Per unit selling price for Product B is $101 and for Product C is $56.

1. Prepare an analysis that shows whether the 21,000 units of Product A should be processed further or not?

	Sell as is Process Further Sales Relevant costs: Costs to process further 0 Total relevant costs Income (loss) Incremental net income (or loss) if processed further The company should process further

Answer 1

Answer
	Sell as is	Process Further
Sales	$         480,000	$              1,242,100	(5700*101)+(11900*56)
Relevant costs
Costs to process further		$                 260,000
Total relevant costs		$                 260,000
Income (loss)	$         480,000	$                 982,100
Incremental net income (or loss) if processed further(982100-480000)		$                 502,100	Incremental income
The company should	process further