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20 September, 13:12

Crane Company is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $24 and Crane would sell it for $42. The cost to assemble the product is estimated at $6 per unit and the company believes the market would support a price of $43 on the assembled unit. What decision should Crane make? Process further, the company will be better off by $12 per unit. Process further, the company will be better off by $19 per unit. Sell before assembly, the company will be better off by $5 per unit. Sell before assembly, the company will be better off by $1 per unit.

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  1. 20 September, 15:14
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    The correct answer is C.

    Explanation:

    Giving the following information:

    The unit cost of the unassembled product is $24 and Crane would sell it for $42. The cost to assemble the product is estimated at $6 per unit and the company believes the market would support a price of $43 on the assembled unit.

    To determine a decision, we need to calculate the unitary contribution margin:

    Unassembled:

    Contribution margin = 42 - 24 = $18 per unit

    Assembled:

    Contribution margin = 43 - 30 = $13 per unit

    It is more profitable to sell the product unassembled. It has a unitary contribution margin of $5 higher per unit.
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