Great Lakes Boat Company manufactures sailboat hulls at a cost of $4,200 per uni

Question

Great Lakes Boat Company manufactures sailboat hulls at a cost of $4,200 per unit. The hulls are sold to boat yards for $5,000. The company is evaluating the desirability of adding masts, sails, and rigging to the hulls prior to sale at an additional cost of $1,500. The completed sailboats could then be sold for $6,000 each.

Calculate the net benefit (cost) of processing the boat hulls into sail boats. Assume sales volume will not be affected. Use a negative sign with your answer, if appropriate.

Explanation / Answer

Great Lakes Boat Company Amt $ per unit Manufacturing cost sailboat hulls                    4,200 Selling Price hulls per units                    5,000 Net benefit per unit                          800 Additional cost of completion                    1,500 Selling Price per completed boat                    6,000 Incremental Revenue per boat                    1,000 Net benefit/(cost)                      (500) So there is a loss of $500 each unit for processing hulls into boats

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