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Stooge Enterprises manufactures ceiling fans that normally sell for $95 each. There are 330 defective fans in inventory, which cost $57 each to manufacture. These defective units can be sold as is for
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17 votes
17 votes
Stooge Enterprises manufactures ceiling fans that normally sell for $95 each. There are 330 defective fans in inventory, which cost $57 each to manufacture. These defective units can be sold as is for $22 each, or they can be processed further for a cost of $41 each and then sold for the normal selling price. Stooge Enterprises would be better off by a

User Vladimir Kroz
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1 Answer

28 votes
28 votes

Answer:

It is more profitable to continue processing the units. Income will increase by $10,560.

Step-by-step explanation:

Giving the following information:

Number of units= 330

Sold as-is:

Selling price= $22

Continue processing:

Selling price= $95

Unitary variable cost= $41

We won't take into consideration the firsts production costs. They are equal in both options, therefore, they are irrelevant.

Sold as-is:

Effect on income= 330*22= $7,260 increase

Continue processing:

Effect on income= 330*(95 - 41)= $17,820

It is more profitable to continue processing the units. Income will increase by $10,560.

User Mark Leonard
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