Question

Pine Street Inc. makes unfinished bookcases that it sells for $57.00. Production costs are $37.20 variable and $9.50 fixed. Because it has unused capacity, Pine Street is considering finishing the bookcases and selling them for $70.00. Variable finishing costs are expected to be $5.50 per unit with no increase in fixed costs.

Required:
Prepare an analysis on a per unit basis showing whether Pine Street should sell unfinished or finished bookcases.

Answer 1

Pine Street Inc. should sell finished bookcases as it increases net income by $7.50.

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

Sell Unfurnished Sell finished Net Income

Sales per unit $57.00 $70.00 $13.00

Cost per unit

Variable $37.20 $42.70 -$5.50

Fixed $9.50 $9.50 0

Total $46.70 $52.20 -$5.50

Net income per unit $10.30 $17.80 $7.50

Net income increases for sell finished goods by $7.50.

So, Pine Street Inc. should sell finished bookcases.