Question

Chino Company manufactures fabric and clothing. Managers can either sell the unfinished fabric to other clothing manufacturers or incur additional conversion costs to create a finished garment. The costs incurred to produce the unfinished fabric are $400,000, which are allocated to the products based on the sales value of the unfinished fabric. Following is information concerning the clothing that can be produced from the fabric:

Product	Number of Units	Selling Price of Unfinished Fabric	Selling Price after Processing Further	Additional Processing Cost
Pants	6,000	20.00	30.00	$28, 450
Shirts	12,000	23.20	32.40	64,400
Coats	4,000	38.80	43.20	18,300

Required:
Calculate the increase or decrease in profit if the products are processed further.
(PLEASE SHOW WORKINGS)

Answer 1

Solution

Cost of unfabric cost will be allocated based on slaes value of the unfinished fabric as follows

FOr pants = total cost of produce /total sales value * pants's sales value

FOr shirts = total cost of produce /total sales value * shirts's sales value

FOr coats = total cost of produce /total sales value * coats's sales value

compuation sheet as follows ( below calculated amounts are in $)

working sheet as follows

if products ar processed further , pants and shirts show increase in profit by $31550 an $46000 respectively while coats show decrease in profit by $700