Cobe Company has already manufactured 18,000 units of Product A at a cost of $15 per unit. The 18,000 units can be sold at this stage for $490,000. Alternatively, the units can be further processed at a $230,000 total additional cost and be converted into 5,500 units of Product B and 11,900 units of Product C. Per unit selling price for Product B is $102 and for Product C is $50.

Prepare an analysis that shows whether the 18,000 units of Product A should be processed further or not.

Question

Business

Kyleigh Vargas

14 April, 00:41

Cobe Company has already manufactured 18,000 units of Product A at a cost of $15 per unit. The 18,000 units can be sold at this stage for $490,000. Alternatively, the units can be further processed at a $230,000 total additional cost and be converted into 5,500 units of Product B and 11,900 units of Product C. Per unit selling price for Product B is $102 and for Product C is $50.

Prepare an analysis that shows whether the 18,000 units of Product A should be processed further or not.

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Answers (1)

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Tobias · Answer 1

Yes, Product A should be processed further

Explanation:

Following is the analysis prepared to show whether the Product A should be processed further or not:

Processed further and sold: $

Product B (5,500 x 102) 561,000

Product C (11,900 x 50) 595,000

Relevant Cost:

Cost to Process Further (230,000)

Net Income / (Loss) 926,000

Less: Sale Price of Product A (490,000)

Additional Net Income 436,000

If the Product B and C are processed and sold then further net income of $436,000 will be generated. Hence, the Product A should be processed further and must be converted to Product B and C.