Chino Company manufactures fabric and clothing. Managers can either sell the unfinished fabric to other clothing manufacturers or incur additional conversion costs to create a finished garment. The costs incurred to produce the unfinished fabric are $400,000, which are allocated to the products based on the sales value of the unfinished fabric. Following is information concerning the clothing that can be produced from the fabric:

Required:
1. Which costs are relevant to the decision to sell or process further?
2. Which products should be sold as unfinished fabric and which should be further processed?
3. Assume that the $400,000 in costs is allocated based on the number of units of output. Which products should be sold as unfinished fabric and which should be furtherprocessed?

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Number of Units Selling Price of Unfinished Fabric $20.00 23.20 38.80 Selling Price after Processing Further $30.00 32.40 43.20 Additional Processing Cost Product Pants Shirts Coats 6,000 12,000 4,000 $28,450 64,400 18,300