Question

"stooge enterprises manufactures ceiling fans that normally sell for? $90 each. there are 300 defective fans in? inventory, which cost? $55 each to manufacture. these defective units can be sold as is for? $20 each, or they can be processed further for a cost of? $40 each and then sold for the normal selling price. stooge enterprises would be better off by a"

Answer 1

We know that Profit = Earnings  - Cost

Case 1: Sold as is

Profit = (300 fans* $20/fan) - (300 fans* $55/fan)

Profit = - $10, 500 (deficit)

 

Case 2: Processed further then sell

Profit = (300 fans* $90/fan) – [(300 fans* $55/fan) + (300 fans* $40/fan)]

Profit = - $1, 500 (deficit)

 

Since Case 2 has lower deficit, then it is better to process the fans further then sell to normal selling price.