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?

Answer 1

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

Step-by-step explanation:

Given: Current selling price= $55.

Production cost= $20.

Cost of assembling the product= $12.

New selling price would be $68.

Now, calculating the profit to compare it on both occassion.

Profit with current selling price=
`Selling\ price - Cost\ price`

⇒ Profit with current selling price=
`\$ 55 - \$ 20`

∴ Profit with current selling price=
`\$ 35`

Next profit with new selling price and cost price.

Profit with new selling price=
`\$ 68 - (\$ 20+\$ 12)`

⇒ Profit with new selling price=
`\$ 68 - \$ 32`

∴ Profit with new selling price=
`\$ 36`

Hence, on comparing the profit on both selling price we find that there is an increase in net income
`(\$ 36-\$ 35) = \$ 1`, therefore, Walton could process further new price.