Exercise 23-8 Sell or process further LO A1 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.

Cobe Company should process further  as it will increase its net income by $252, 000

Explanation:

A company should process further a product if the additional revenue from the split-off point is greater than than the further processing cost.  

Also note that all cost incurred up to the point of crush are irrelevant to the decision to process further  

                                                                                               $

Revenue from Product B  (5,600× 105)                        588000

Revenue from Product C  (11200× 70)                          784000

                                                                                        1372000

Revenue from product      A                                       700,000

Additional revenue                                                         672000

Further processing cost                                               (420,000)

Net income from further processing                           252,000

Cobe Company should process further  as it will increase its net income by $252, 000

Analysis to show wether 28,000 units of product A should be processed or not

Explanation:

                                      sell as is      process further  

sales                        700000      1372000  

relevant cost    

cost to process further       0        420000  

total relevant cost               0        420000  

income                         700000        952000  

incremental income          252000

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.