Designer Dollhouses manufactures dollhouse kits that are meant to be assembled b

Question

Designer Dollhouses manufactures dollhouse kits that are meant to be assembled by customers. Each kit sells for $60 and has $12 in fixed production costs and $10 in variable production costs. Rather than selling these kits, the firm is thinking about selling the dollhouses fully assembled for $95 each. The variable costs for assembling one dollhouse are expected to be $4 and the fixed costs are expected to be $10. Given these figures, which of the following statements is accurate?

A : Designer should sell assembled dollhouses rather than dollhouse kits because its net income per unit will be $21 higher.

B : Designer should sell dollhouse kits rather than assembled dollhouses because its net income per unit will be $14 higher.

C : Designer should sell dollhouse kits rather than assembled dollhouses because its net income per unit will be $8 higher.

D : Designer should sell assembled dollhouses rather than dollhouse kits because its net income per unit will be $43 higher.

Explanation / Answer

Additional revenue per unit $ 35 95-60 Additional per unit costs (Both fixed and variable) $ 14 4+10 Additional net income per unit $ 21 35-14 Correct option is A.

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