Pacific Woodworks, Inc. has an inventory of a very unique wood that was purchase
ID: 1258239 • Letter: P
Question
Pacific Woodworks, Inc. has an inventory of a very unique wood that was purchased for $10,000 five years ago.Currently the market value of this wood is $23,000.
The production department has proposed to use this wood for making 1,000 statuettes and sell them for $20 each.
All other expenses for making one statuette is $6 per statuette not including the cost of wood. Question: Is the proposal economically viable? Please explain your answer. Pacific Woodworks, Inc. has an inventory of a very unique wood that was purchased for $10,000 five years ago.
Currently the market value of this wood is $23,000.
The production department has proposed to use this wood for making 1,000 statuettes and sell them for $20 each.
All other expenses for making one statuette is $6 per statuette not including the cost of wood. Question: Is the proposal economically viable? Please explain your answer.
Explanation / Answer
Wood was purchased for 10,000 $ which is fixed cost
Current market value= 23000$
If it makes statuettes, Total revenue=1000(20)=20000 $
Total cost=variable cost+fixed cost
=6(1000)+10,000=16000 $
Profit=20000-16000=4000 $
If it does not make statuettes, it can sell it directly in market for 23000 $ and can earn
23000-10000=13000 $
Since 13000 >4000, so proposal is not economically viable.
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