Question

Exercise 10-8 Sell or process further LO A1

Cobe Company has already manufactured 20,000 units of Product A at a cost of $20 per unit. The 20,000 units can be sold at this stage for $450,000. Alternatively, the units can be further processed at a $260,000 total additional cost and be converted into 5,100 units of Product B and 11,900 units of Product C. Per unit selling price for Product B is $101 and for Product C is $54.

1. Prepare an analysis that shows whether the 20,000 units of Product A should be processed further or not.

Answer 1

	Sell as is	Process Further
Sales	450,000.00	1,157,700.00
Relevant Cost
Cost to Process Further		260,000.00
Total Relevant Costs		260,000.00
Income (loss )	450,000.00	897,700.00
Incremental net income (or loss) if processed further		447,700.00	Incremental income
The company should		process further