Calico Company is starting business and is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $90 and Calico Company would sell it for $180. The cost to assemble the product is estimated at $36 per unit and Calico Company believes the market would support a price of $232 on the assembled unit. What is the correct decision using the sell or process further decision rule?
A) Sell before assembly the company will be better off by $36 per unit.
B) Sell before assembly the company will be better off by $52 per unit.
C) Process further the company will be better off by $52 per unit.
D) Process further the company will be better off by $16 per unit.

Question

Quizplus · Accepted Answer

The additional cost of assembly is $36 per unit, and the increase in selling price from $180 to $232 is $52 per unit. The net benefit of assembling the product is $52 - $36 = $16 per unit. Therefore, processing further (assembling) makes the company better off by $16 per unit.

Calico Company Is Starting Business and Is Unsure of Whether