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16 July, 15:37

Cobe Company has already manufactured 23,000 units of Product A at a cost of $20 per unit. The 23,000 units can be sold at this stage for $460,000. Alternatively, the units can be further processed at a $240,000 total additional cost and be converted into 5,000 units of Product B and 12,000 units of Product C. Per unit selling price for Product B is $101 and for Product C is $56. 1. Prepare an analysis that shows whether the 23,000 units of Product A should be processed further or not.

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  1. 16 July, 16:04
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    product A should be processed further.

    Explanation:

    Given;

    Manufacturing cost = $20 per unit

    Number of units manufactured = 23,000

    Selling cost of all units = $460,000

    Further processing cost = $240,000

    Number of units of product B produced = 5,000

    Number of units of product C produced = 12,000

    Per unit selling price of product B = $101

    Per unit selling price of product C = $56

    Total relevant cost for Product B and C = $240,000

    Total revenue from selling Product B and C

    = ($101 * 5,000) + ($56 * 12,000)

    = $505,000 + $672,000

    = $1,177,000

    Total income from Product B and C

    = Total revenue from selling Product B and C - Relevant cost

    = $1,177,000 - $240,000

    = $937,000

    The net incremental income

    = Total income from Product B and C - income from sales without processing

    = $937,000 - $460,000

    = $477,000

    Since, the net incremental income is positive the product A should be processed further.
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