Cobe Company has already manufactured 17,000 units of Product A at a cost of $25 per unit. The 17,000 units can be sold at this stage for $450,000. Alternatively, the units can be further processed at a $280,000 total additional cost and be converted into 5,800 units of Product B and 11,100 units of Product C. Per unit selling price for Product B is $100 and for Product C is $56.

Question

Business

Miranda Fry

21 December, 08:03

Cobe Company has already manufactured 17,000 units of Product A at a cost of $25 per unit. The 17,000 units can be sold at this stage for $450,000. Alternatively, the units can be further processed at a $280,000 total additional cost and be converted into 5,800 units of Product B and 11,100 units of Product C. Per unit selling price for Product B is $100 and for Product C is $56.

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Answers (1)

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Julio Chapman · Answer 1

It is more convenient to continue processing.

Explanation:

Giving the following information:

Cobe Company has already manufactured 17,000 units of Product A for $25 per unit. The 17,000 units can be sold at this stage for $450,000. Alternatively, the units can be further processed at a $280,000 total additional cost and be converted into 5,800 units of Product B and 11,100 units of Product C. Per unit selling price for Product B is $100 and for Product C is $56.

We need to determine whether it is more convenient to sell the units now, or continue processing.

Sell now:

Income = 450,000 - (17,000*25) = $25,000

Continue processing:

Income = sales produc B + sales product C - joint cost - Product A cost

Income = 5,800*100 + 11,100*56 - 280,000 - (17,000*25) = $496,600

It is more convenient to continue processing.