The Scottie Sweater Company produces sweaters under the \"Scottie\" label. The c

Question

The Scottie Sweater Company produces sweaters under the "Scottie" label. The company buys raw wool and processes it into wool yarn from which the sweaters are woven. One spindle of wool yarn is required to produce one sweater. The costs and revenues associated with the sweaters are given below Selling price Cost to manufacture $ 39.00 Raw materials Buttons, thread, lining S 2.00 Wool yarn 18.00 Total raw materials Direct labor Manufacturing overhead 20.00 8.40 12.60 41.00 Manufacturing profit (loss) s (2.00) Originally, all of the wool yarn was used to produce sweaters, but in recent years a market has developed for the wool yarn itself. The yarn is purchased by other companies for use in production of wool blankets and other wool products. Since the development of the market for the wool yarn, a continuing dispute has existed in the Scottie Sweater Company as to whether the yarn should be sold simply as yarn or processed into sweaters. Current cost and revenue data on the yarn are given below: Per Spindle of Yarn 2600 Selling price Cost to manufacture $11.00 Raw materials (raw wool) Direct labor 3.60 3.40 18.00 Manufacturing overhead s 8.00 Manufacturing profit

Explanation / Answer

Working:

1-b. Yes.

1-c. The lowest price the company should accept for a sweter is $41.00

Working:

Increase in revenue is $2.60 per sweater

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