Question

Pine Street Inc. makes unfinished bookcases that it sells for $58.51. Production costs are $37.56 variable and $9.67 fixed. Because it has unused capacity, Pine Street is considering finishing the bookcases and selling them for $70.45. Variable finishing costs are expected to be $8.41 per unit with no increase in fixed costs. Prepare an analysis on a per unit basis showing whether Pine Street should sell unfinished or finished bookcases. (Round answers to 2 decimal places, e.g. 15.25. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

The book case should be processed further

Step-by-step explanation:

Sell Option Process Further Increase/Decrease

Sales per unit $58.51 $70.45 $11.94

Cost per unit:

Variable $37.56 $45.97 ($8.41)

Fixed $9.67 $9.67 $0

Total cost $47.23 $55.64 ($8.41)

Net income per unit $11.28 $14.81 $3.53

Conclusion: The book case should be processed further as its Net Income per unit is higher than if the Pine street should sell.