Question

In: Accounting

A company produces a product that currently costs $8 in variable costs and $2 in fixed...

A company produces a product that currently costs $8 in variable costs and $2 in fixed costs. It sells the product for $14. If processed further, the company will spend an additional $6 in variable costs and $2 in fixed costs. Each unit would then be sold for $24.

Why would the company choose to process further?

Solutions

Expert Solution

Yes company should Choose to Process further

Detail working for your refrence

Sells Price $14.00
Less: Variable cost $8.00
Less: Fixed Cost $2.00
Margin $4.00
Computation of Margin from processed further
Additional Cost to be incurred ( 6+2) $8.00
Existing Margin Lost $4.00
Total Relevant Cost $12.00
Sales Price after further processing $24.00
Net Margin after further processing (24-12) $12.00

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