Question

Crane Company is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $24 and Crane would sell it for $42. The cost to assemble the product is estimated at $6 per unit and the company believes the market would support a price of $43 on the assembled unit. What decision should Crane make? Process further, the company will be better off by $12 per unit. Process further, the company will be better off by $19 per unit. Sell before assembly, the company will be better off by $5 per unit. Sell before assembly, the company will be better off by $1 per unit.

Answer 1

The correct answer is C.

Step-by-step explanation:

Giving the following information:

The unit cost of the unassembled product is $24 and Crane would sell it for $42. The cost to assemble the product is estimated at $6 per unit and the company believes the market would support a price of $43 on the assembled unit.

To determine a decision, we need to calculate the unitary contribution margin:

Unassembled:

Contribution margin= 42 - 24= $18 per unit

Assembled:

Contribution margin= 43 - 30= $13 per unit

It is more profitable to sell the product unassembled. It has a unitary contribution margin of $5 higher per unit.