Sell or Process Further Great Lakes Boat Company manufactures sailboat hulls at

Question

Sell or Process Further Great Lakes Boat Company manufactures sailboat hulls at a cost of $4,200 per unit. The hulls are sold to boat yards for $4,800. The company is evaluating the desirability of adding masts, sails, and rigging to the hulls prior to sale at an additional cost of $2,600. The completed sailboats could then be sold for $6,900 each. Determine whether the company should sell sailboat hulls or process them further into complete sailboats. Assume sales volume will not be affected. Calculate the net advantage (disadvantage) of processing the boat hulls into sail boats. Use a negative sign with your answer, if appropriate. $Answer

Explanation / Answer

Further processing is giving only $100 per unit whereas without further processing the company is getting $600 per unit and hence further processing is not required as it is eroding profit $500 per unit.

Particulars existing option further processing Selling Price per unit $4,800 $6,900 Cost per unit $4,200 $4,200 further processing cost $0 $2,600 total cost per unit $4,200 $6,800 Profit per unit $600 $100

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