Question

Oficina Bonita Company manufactures office furniture. An unfinished desk is produced for $37.65 and sold for $65.35. A finished desk can be sold for $74.50. The additional processing cost to complete the finished desk is $6.60. Prepare a differential analysis. Round your answers to two decimal places.

Answer 1

The differential analysis shows that it is more profitable by $2.55 to sell the desk finished rather than unfinished, with the profits being $27.70 for an unfinished desk and $30.25 for a finished desk.

Step-by-step explanation:

To create a differential analysis for the Oficina Bonita Company, we need to compare the incremental costs and revenues associated with finishing the desks versus selling them unfinished.

• Revenue from unfinished desk: $65.35
• Cost of unfinished desk: $37.65
• Profit from unfinished desk: $65.35 - $37.65 = $27.70

For the finished desk:

• Additional processing cost: $6.60
• Selling price of finished desk: $74.50
• Profit from finished desk: $74.50 - $37.65 - $6.60 = $30.25

By finishing the desk, the company can make an additional profit of:

$30.25 - $27.70 = $2.55 per desk.

Therefore, it is more profitable by $2.55 to sell the desk finished rather than unfinished.

Answer 2

Alternative 1 $27.7

Alternative 2 $30.25

Differential effects $2.55

Step-by-step explanation:

Preparation of a differential analysis

DIFFERENTIAL ANALYSIS

Sell unfinished desks(Alternative 1 ) Process further into finished desks (Alternative 2) Differential effect (Alternative 2)

Revenue per desk $65.35 $74.50 $9.15

($74.50-$65.35=$9.15)

Cost per desk - $37.65 -$44.25 -$6.60

($37.65+$6.60=$44.25)

Profit /Loss per desk $27.7 $30.25 $2.55

($65.35 - $37.65=$27.7)

($74.50-$44.25=$30.25)

($9.15-$6.60=$2.55)

Therefore the company should process further and sell finished desks because it yields incremental Profit per desk.