Question

"stooge enterprises manufactures ceiling fans that normally sell for? $90 each. there are 300 defective fans in? inventory, which cost? $55 each to manufacture. these defective units can be sold as is for? $20 each, or they can be processed further for a cost of? $40 each and then sold for the normal selling price. stooge enterprises would be better off by a"

Answer 1

Stooge Enterprises should process the defective fans further despite both options leading to a loss, because the loss is smaller when fans are processed and sold at the normal price.

Step-by-step explanation:

The student's question pertains to a decision Stooge Enterprises must make regarding defective fans in their inventory. They are faced with two options: sell the fans as-is for $20 each or incur a further processing cost of $40 per fan to sell them at the normal price of $90.

If the fans are sold as-is, the company receives $20 each, resulting in a loss of $35 per fan when considering the $55 manufacturing cost. In contrast, processing the fans further for $40 and then selling them at the normal price leads to a per-fan cost of $95 ($55 for manufacturing and $40 for additional processing), while selling at $90 would result in a loss of $5 per unit.

Comparing the two outcomes, selling as-is for $20 results in a higher loss compared to processing further and selling at the normal price. Therefore, Stooge Enterprises would be better off by processing the fans further and selling them at the normal price, despite both options resulting in a loss, because the loss per fan is smaller with further processing.

Answer 2

We know that Profit = Earnings - Cost

Case 1: Sold as is

Profit = (300 fans* $20/fan) - (300 fans* $55/fan)

Profit = - $10, 500 (deficit)

Case 2: Processed further then sell

Profit = (300 fans* $90/fan) – [(300 fans* $55/fan) + (300 fans* $40/fan)]

Profit = - $1, 500 (deficit)

Since Case 2 has lower deficit, then it is better to process the fans further then sell to normal selling price.