Question

Management is considering the discontinuance of the manufacture and sale of Product T at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Product U. What is the amount of change in net income for the current year that will result from the discontinuance of Product T? Grace Co. can further process Product B to produce Product C. Product B is currently selling for $60 per pound and costs $38 per pound to produce. Product C would sell for $95 per pound and would require an additional cost of $13 per pound to produce. What is the differential revenue per unit of producing and selling Product C?

Answer 1

Answer:

It is more convenient to continue processing.

Explanation:

Giving the following information:

Grace Co. can further process Product B to produce Product C. Product B is currently selling for $60 per pound and costs $38 per pound to produce. Product C would sell for $95 per pound and would require an additional cost of $13 per pound to produce.

To determine the convenience of further processing we need to calculate the contribution margin:

CM= selling price - unitary variable cost

Product B= 60 - 38= 22 per unit

Product C= 95 - 38 - 13= 44 per unit