Question

Pine Street Inc. makes unfinished bookcases that it sells for $62. Production costs are $36 variable and $10 fixed. Because it has unused capacity, Pine Street is considering finishing the bookcases and selling them for $70. Variable finishing costs are expected to be $6 per unit with no increase in fixed costs. Prepare an analysis on a per unit basis showing whether Pine Street should sell unfinished or finished bookcases.

Answer 1

It is more profitable to continue processing.

Step-by-step explanation:

Giving the following information:

Pine Street Inc. makes unfinished bookcases that it sells for $62. Production costs are $36 variable and $10 fixed. Because it has unused capacity, Pine Street is considering finishing the bookcases and selling them for $70. Variable finishing costs are expected to be $6 per unit with no increase in fixed costs.

Unfinished bookcases contribution margin= 62 - 46= 16

Finished bookcases contribution margin= 70 - 52= 18

It is more profitable to continue processing.