QS 23-11 Sell or process further LO A1 A company has already incurred $5,200 of costs in producing 6,100 units of Product XY. Product XY can be sold as is for $31 per unit. Instead, the company could incur further processing costs of $8 per unit and sell the resulting product for $35 per unit. Should the company sell Product XY as is or process it further?

Question

Business

Belinda Cherry

24 March, 03:48

QS 23-11 Sell or process further LO A1 A company has already incurred $5,200 of costs in producing 6,100 units of Product XY. Product XY can be sold as is for $31 per unit. Instead, the company could incur further processing costs of $8 per unit and sell the resulting product for $35 per unit. Should the company sell Product XY as is or process it further?

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Answers (1)

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Klaus · Answer 1

It is more profitable to sell te products as-is.

Explanation:

Giving the following information:

Sell as-is:

Selling price = $31

Continue processing:

Selling price = $35

Unitary incremental cost = $8

Units = 6,100

The firsts $5,200 is a sunk cost, this means that the cost will remain the same in both options. It is irrelevant to the decision-making process.

Sell as-is:

Effect on income = 6,100*31 = $189,100

Continue processing:

Effect on income = 6,100 * (35-8) = $164,700

It is more profitable to sell te products as-is.