Question

Cobe Company has already manufactured 25,000 units of Product A at a cost of $25 per unit. The 25,000 units can be sold at this stage for $480,000. Alternatively, the units can be further processed at a $210,000 total additional cost and be converted into 5,400 units of Product B and 11,100 units of Product C. Per unit selling price for Product B is $107 and for Product C is $55.

1. Prepare an analysis that shows whether the 25,000 units of Product A should be processed further or not.

Answer 1

whether the 25,000 units of Product A should be processed ------Answer-No

The further processing of product A is not recommended because additional revenue is not more than additional cost of further processing. The analysis is given below:-

Data for Decision
Products	(A) Immidiate sale price	(B) Price after Further Processing	C=(B-A)Additional revenue	(D)Additional cost	(C-D)Additional benefit
Alternate 1	$   4,80,000.00	$ 5,77,800.00*	$       97,800.00	$ 2,10,000.00	$ (1,12,200.00)
Alternate 2	$   4,80,000.00	$ 6,10,500.00**	$   1,30,500.00	$ 2,10,000.00	$      (79,500.00)

*5400 x 107

**11100 x 55