Question

Sheffield Corp. is starting business and is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $60 and Sheffield Corp. would sell it for $135. The cost to assemble the product is estimated at $25 per unit and Sheffield Corp. believes the market would support a price of $170 on the assembled unit. What is the correct decision using the sell or process further decision rule?

Answer 1

Answer:

The correct decision would be to process further before product is sold

Explanation:

Profit if the product is sold un-assembled

Selling price                                          $135

cost of un-assembled product            ($60)

Profit on un-assembled  product         $75

Profit if the product is further assembled before sale

Selling price                                         $170

Cost of un-assembled product           ($60)

Cost of assembling product                ($25)

Profit if the product is assembled       $85

The profit increased by $10 if the product is further assembled before it is sold.

Hence the best course of action would be to further assemble the product before it is sold