Pine Street Inc. makes unfinished bookcases that it sells for $59.37. Production costs are $37.59 variable and $9.54 fixed. Because it has unused capacity, Pine Street is considering finishing the bookcases and selling them for $70.62. Variable finishing costs are expected to be $5.64 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.

Question

Business

Lilah Howe

23 November, 02:13

Pine Street Inc. makes unfinished bookcases that it sells for $59.37. Production costs are $37.59 variable and $9.54 fixed. Because it has unused capacity, Pine Street is considering finishing the bookcases and selling them for $70.62. Variable finishing costs are expected to be $5.64 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.

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Samson Hodge · Answer 1

Since profit per unit is more in Finished bookcase, book cases shall be finished and then sold.

Additional profit per unit on finished book cases in comparison to unfinished book cases = $17.85 - $12.24 = $5.61 per unit.

Explanation:

Provided, current profit per unit = Selling price - Total cost = $59.37 - $37.59 - $9.54 = $12.24

This is calculated to know the current profit per unit, without furnishing the bookcase.

In case, the bookcase is furnished then the cost will increase by $5.64 per unit.

That is total cost per unit = $37.59 + $9.54 + $5.64 = $52.77

Revised selling price = $70.62 for each finished unit

Therefore profit pr unit on finished bookcase = $70.62 - $52.77 = $17.85

Since profit per unit is more in Finished bookcase, book cases shall be finished and then sold.

Additional profit per unit on finished book cases in comparison to unfinished book cases = $17.85 - $12.24 = $5.61 per unit.