Question

Holmes Company produces a product that can either be sold as is or processed further. Holmes has already spent $86,000 to produce 2,400 units that can be sold now for $67,500 to another manufacturer. Alternatively, Holmes can process the units further at an incremental cost of $260 per unit. If Holmes processes further, the units can be sold for $395 each. Compute the incremental income if Holmes processes further.

Answer 1

Answer:

The incremental income if processes further is 256,500

Explanation:

We need to compare the income on each stage:

currently

67500 revenues

- 86000 cost =

-18500 loss

further process

revenues$ 395x 2,400 units 948,000

cost

86,000 Beginning (previous stage cost)

2,400 units x $260. each

624,000 added during the process

total cost 710,000

revenues - total cost = income

948,000 - 710,000 = 238,000

incremental income

$incremental \: income = next \: stage \: income - current \: stage \: income$

238,000 - (-18,500) = 256,500