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 $410,000. Alternatively, the units can be further processed at a $290,000 total additional cost and be converted into 5,900 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 $60. 1. Prepare an analysis that shows whether the 18,000 units of Product A should be processed further or not.

Explanation:

Workings                      

Product A

Selling price                                         410,000

Income 1                                                410,000

Further processing

Incremental cost        290,000

Product B                    5900       102     601,800

Product C                    11,900       60     714,000

Total revenue                                        1,315,800

Incremental cost                                      290,000

Income 2                                                1,025,800

Income on further process , that is if an additional cost of 290,000 is spent on the initial cost that generated the sales of 410,000 = 1,025,800

Incremental income on further processing =1,025,800-410,000 = 615,800

Therefore , it is advised that it should be processed further.

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