CP25-33 Making sell or process further decisions Danies Consulting provides cons
ID: 2414952 • Letter: C
Question
CP25-33 Making sell or process further decisions
Danies Consulting provides consulting services at an average price of $150 per hour and incurs variable costs of $75 per hour. Assume average fixed costs are $5,250 a month. Daniels has developed new software that will revolutionize billing for companies. Daniels has already invested $300,000 in the software. It can market the software as is at $40,000 per client and expects to sell to 12 clients. Daniels can develop the software further, adding integration to Microsoft products at an additional development cost of $150,000. The additional development will allow Daniels to sell the software for $49,000 each but to 16 clients.
Should daniels sell the software as is or develop it further?
Please include the step-by-step process when determining this answer. Thank you!
Explanation / Answer
Calculation of profit when sold before further process:
Details
Amount
Selling price of software
$ 40,000
Number of clients
12
Total sales revenue
$ 480,000
Less: Cost of software
$ 300,000
Profit
$ 180,000
Calculation of profit when sold after further process:
Details
Amount
Selling price of software
$ 49,000
Number of clients
16
Total sales revenue
$ 784,000
Less: Cost of software
$ 300,000
Less: Additional development cost
$ 150,000
Profit
$ 334,000
When software sold after further process, profit increased to $334,000 from $180,000. Therefore, it is advised to go for further process.
Details
Amount
Selling price of software
$ 40,000
Number of clients
12
Total sales revenue
$ 480,000
Less: Cost of software
$ 300,000
Profit
$ 180,000
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