Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 38

Sell or process further? American Chemical Company manufactures a chemical compound that is sold for $29 per gallon. A new variant of the chemical has been discovered, and if the basic compound were processed into the new variant, the selling price would be $36 per gallon. American expects the market for the new compound variant to be 5,000 gallons initially and determines that processing costs to refine the basic compound into the new variant would be $40,000.
Required:
Should American produce the new compound variant? Explain your answer.