Lark Art Company sells unfinished wooden decorations at a price of $15.00. The c

Question

Lark Art Company sells unfinished wooden decorations at a price of $15.00. The current profit margin is $5.00 per decoration. The company is considering taking individual orders and customizing them for customers. To finish the decoration, the company would have to pay additional labor of $3.00 per unit, additional materials costing an average of $4.00 per unit, and fixed costs would increase by $1,500. If the company estimates that it can sell 600 units for $25.00 per unit each month, should it start taking the orders?

Explanation / Answer

S.P of unfinished wooden decorations $15 current profit margin ($5) Current Cost $10 Additional Cost to be incurred additional labor $3 additional materials cost $4 Additional fixed costs $1,500 If the company produce 600 units, Sales value [600*$25] 15000 Cost(WN1) 11700 PROFIT 3300 YES THE COMPANY SHOULD START TAKING ORDERS W.N 1 Cost of goods sld Current Cost [600*$10] 6000 additional labor [600*$3] 1800 additional materials cost [ 600*$4] 2400 Additional fixed costs 1500 TOTAL COST 11700

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