Blossom Street Inc. makes unfinished bookcases that it sells for $57. Production costs are $37 variable and $10 fixed. Because it has unused capacity, Blossom Street is considering finishing the bookcases and selling them for $70. Variable finishing costs are expected to be $6 per unit with no increase in fixed costs. Prepare an analysis on a per unit basis showing whether Blossom Street should sell unfinished or finished bookcases. (Enter negative amounts using either a negative sign preceding the number e. g. -45 or parentheses e. g. (45).)

Answer and Explanation:

The Preparation of an analysis on a per unit basis is shown below:-

Particulars          Sell unfinished   Sell finished   Increase/Decrease

                               bookcases      bookcases          in income

Sale price per

unit                         $57                      $70               $13

Less: variable cost

per unit                  $37                    $43                  $6

                                                     ($37 + $6)

Les: fixed cost per

unit                        $10                    $10                      $0

Total cost per

unit                       $47                    $53                     $6

Net income per

unit                      $10                      $17                      $7

Therefore, Unfinished bookcases are further processed, as net profit per unit increases further by processing by $7

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