Relevant costs for decision makingCipla Uganda pharmaceutical company, buys a chemical for $10,000, which it breaks down into two components:ComponentSales value ($)Allocated costs ($)A8,0007,000B4,0005,000Component A can be converted into Product A if $6,000 is spent on further processing. Product A would sell for $12,000.Component B can be converted into Product B if $10,000 is spent on further processing. Product B would sell for $17,000.Required; What processing decision should Cipla make in order to maximize profits?Illustrate the production plan to show the contribution margin.

The company makes multiple products that can be further processed and sold, generally, the company’s…

Answered: Relevant costs for decision making…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Relevant costs for decision making

Cipla Uganda pharmaceutical company, buys a chemical for $10,000, which it breaks down into two components:

Component	Sales value ($)	Allocated costs ($)
A	8,000	7,000
B	4,000	5,000

Component A can be converted into Product A if $6,000 is spent on further processing. Product A would sell for $12,000.
Component B can be converted into Product B if $10,000 is spent on further processing. Product B would sell for $17,000.

Required;

What processing decision should Cipla make in order to maximize profits?

Illustrate the production plan to show the contribution margin.

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