Cobe Company has already manufactured 28,000 units of Product A at a cost of $28 per unit. The 28,000 units can be sold at this stage for $700,000. Alternatively, the units can be further processed at a $420,000 total additional cost and be converted into 5,600 units of Product B and 11,200 units of Product C. Per unit selling price for Product B is $105 and for Product C is $70. 1. Prepare an analysis that shows whether the 28,000 units of Product A should be processed further or not.

The company should process further

Explanation:

The preparation of The company should process further  or not is as follows:-

                        Sell as        Process further

Sales               $700,000    $1,372,000

                                    (5,600 × $105 + 11,200 × $70)

Relevant cost

Process Cost to

further                0                 $420,000  

Total relevant

cost                   0                   $420,000  

Income          $700,000        $952,000

                                         ($1,372,000  - $420,000)

Incremental

Income                                    $252,000

So, the company should process further