Question

Walton, Inc. makes an unassembled product that it currently sells for $55. Production costs are $20. Walton is considering assembling the product and selling it for $68. The cost to assemble the product is estimated at $12. What decision should Walton make?

a. Sell before assembly; net income per unit will be $12 greater.
b. Sell before assembly; net income per unit will be $1 greater.
c. Process further; net income per unit will be $13 greater.
d. Process further; net income per unit will be $1 greater.

Answer 1

Walton, Inc. should assemble the product before selling it, as assembling the product will increase their net income by $1 per unit.

Step-by-step explanation:

Walton, Inc. needs to decide whether to sell its product unassembled or after assembling it. Currently, the unassembled product is sold for $55 with a production cost of $20, resulting in a profit of $35 per unit. If Walton decides to assemble the product, it will sell for $68. The additional assembly cost is $12, bringing the total cost to $32 ($20 + $12), which leaves a profit of $36 per unit assembled ($68 - $32).

Comparing the two scenarios:

• Without assembly: Sell price - $55, Cost - $20, Profit - $35 per unit
• With assembly: Sell price - $68, Cost - $32, Profit - $36 per unit

Assembling the product results in an additional $1 in profit per unit. Therefore, the correct decision for Walton, Inc. would be to process further; the net income per unit will be $1 greater after assembly.

Thus the answer is:

d. Process further; net income per unit will be $1 greater.