FINANCIAL ACCOUNTING
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ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Sell or Process Further
Jensen Manufacturing Company makes a partially completed assembly unit that it sells for $44 per unit. Normally, 38,000 units are sold each year. Variable unit cost data on the assembly are as follows:
| Direct material | $10 |
| Direct labor | 8 |
| Variable manufacturing |
4 |
The company is now using only 70% of its normal capacity; it could fully use its normal capacity by processing the assembly further and selling it for $51 per unit. If the company does this, material and labor costs will each increase by $2 per unit and variable overhead will go up by $1 per unit. Fixed costs will increase from the current level of $160,000 to $225,000.
Prepare an analysis showing whether Jensen should process the assemblies further.
Use a negative sign with answer to only indicate a loss from processing assemblies further; otherwise do not use negative signs with your answers.
| Sell of Process Further Differential Analysis | |
|---|---|
| Differential revenue | Answer |
| Differential costs | |
| Direct material | Answer |
| Direct labor | Answer |
| Variable overhead | Answer |
| Fixed costs | Answer |
| Additional income (loss) from processing further | Answer |
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