Question

Pharoah Street Inc. makes unfinished bookcases that it sells for $59. Production costs are $38 variable and $10 fixed. Because it has unused capacity, Pharoah Street is considering finishing the bookcases and selling them for $71. Variable finishing costs are expected to be $7 per unit with no increase in fixed costs. Prepare an analysis on a per unit basis showing whether Pharoah Street should sell unfinished or finished bookcases.

Answer 1

Pharoah Street should sell finished bookcases because it help the company to increase profit by $5 per unit

Step-by-step explanation:

Pharoah Street Inc. has unused capacity. If Pharoah Street makes and sells finished bookcases:

Variable cost per unit will increase by $7

Selling price will increase by $12 ($71 - $59 = $12)

Fixed cost will not change.

Therefore, Profit per unit will increase by: $12 - $7 = $5 per unit

Pharoah Street should sell finished bookcases, it help the company to increase profit by $5 per unit