A company has the choice of either selling 1,000 unfinished units as is or completing them. The company could sell the unfinished units as is for $4.00 per unit. Alternatively, it could complete the units with incremental costs of $1.00 per unit for direct materials, $2.00 per unit for direct labor, and $1.50 per unit for overhead, and then sell the finished units for $8.00 each. What should the company do?

Question

Business

Justice

10 May, 01:39

A company has the choice of either selling 1,000 unfinished units as is or completing them. The company could sell the unfinished units as is for $4.00 per unit. Alternatively, it could complete the units with incremental costs of $1.00 per unit for direct materials, $2.00 per unit for direct labor, and $1.50 per unit for overhead, and then sell the finished units for $8.00 each. What should the company do?

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Answers (1)

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Rayna Krueger · Answer 1

It is more convenient to sell the units unfinished by $500.

Explanation:

Giving the following information:

Units = 1,000

Unfinished:

Selling price = $4.00 per unit.

Complete:

Incremental costs = $1.00 per unit for direct materials, $2.00 per unit for direct labor, and $1.50 per unit for overhead

Selling price = $8.00 each.

We need to calculate the gross profit of each option and choose the more convenient:

Unfinished:

Gross profit = 1,000*4 = $4,000

Complete:

Gross profit = 1,000 * (8 - 4.5) = $3,500

It is more convenient to sell the units unfinished by $500.