Answer:
It is more profitable to not engrave the statues.
Explanation:
Giving the following information:
Sales= 50,000 units
Polished= 40% of sales
Direct material= $5 per pound
Processing= $300 to convert 30 pounds in 60 statues
Polish= $19 per unit
Engraved= $5 per unit
New selling price= $23,5
We need to determine whether it is more convenient to sell the units engraved or not.
First, we need to calculate the unitary cost of a polished unit.
The total cost of 60 units= 5*30 + 300= $450
Unitary cost (normal)= 450/60= $7.5
Unitary cost (engraved)= 7.5+5= $12.5
Total sales= 50,000*0.4= 20,000 units
Now, we can determine the total contribution margin of both options:
Sell as-is:
Total contribution margin= 20,000*(19-7.5)= $230,000
Engrave:
Total contribtuion margin= 20,000*(23.5 - 12.5)= $220,000
<u>It is more profitable to not engrave the statues.</u>
