Question

Ceradyne, Inc. has decided to discontinue manufacturing its Quantum model credit card reader. Currently the company has a number of partially completed readers on hand. The company has spent $111 per unit to manufacture these credit card readers. To complete each unit, costs of $14 for material and $15 for direct labor will be incurred. In addition, $9 of variable overhead and $34 of allocated fixed overhead (relating primarily to depreciation of plant and equipment) will be added per unit. If Ceradyne, Inc., completes the readers, it can sell them for $124 per unit. Another manufacturer is interested in purchasing the partially completed readers for $107 per unit and converting them into inventory tracking devices. Determine whether Ceradyne should complete the credit card readers or sell them in their current state. Ceradyne, Inc., should select an option sell them in their current state . The company will be better off by $enter a dollar amount per unit 22 per unit.

Answer 1

Answer:

Ceradyne, Inc., should sell them in their current state (partially completed), resulting in a net loss of $4 per unit.

The company will be better off by $21 per unit (if it continues to process them, their loss will be $25 per unit).

Explanation:

total costs incurred $111 up to now

additional relevant costs needed to finish units:

$14 for materials

$15 for direct labor

$9 for variable overhead

$38 per unit

selling price $124 per unit

contribution margin once units are finished = $124 - ($111 + $38) = -$25

if units are sold before being completed, then contribution margin per unit = $107 - $111 = -$4

the company has to try to decrease their losses, and the option of selling partially completed readers results in a loss = $4