Business Opportunity #3, Sell or Process Further: After more discussions with Mr. Moon Dog of Moon Dog Cake Company, Mr. Suncat wonders if he should offer to his customers the option of buying the undecorated wedding cake or processing it further for a decorated wedding cake. He thinks that his customers will prefer a decorated wedding cake, but he wants to see what the costs will show. Mr. Suncat has provided you with the following information for the undecorated wedding cake: Selling price $180 Direct material and direct labor costs 65 Variable manufacturing overhead costs 15 Fixed manufacturing overhead costs 45 Here is the information for Mr. Suncat’s decorated wedding cake: Selling price $800 Direct material and direct labor costs 400 Variable manufacturing overhead costs 25 Fixed manufacturing overhead costs 45
Business Opportunity #3, Sell or Process Further:
After more discussions with Mr. Moon Dog of Moon Dog Cake Company, Mr. Suncat wonders if he should offer to his customers the option of buying the undecorated wedding cake or processing it further for a decorated wedding cake. He thinks that his customers will prefer a decorated wedding cake, but he wants to see what the costs will show.
Mr. Suncat has provided you with the following information for the undecorated wedding cake:
|
Selling price |
$180 |
|
Direct material and direct labor costs |
65 |
|
Variable |
15 |
|
Fixed manufacturing overhead costs |
45 |
Here is the information for Mr. Suncat’s decorated wedding cake:
|
Selling price |
$800 |
|
Direct material and direct labor costs |
400 |
|
Variable manufacturing overhead costs |
25 |
|
Fixed manufacturing overhead costs |
45 |
Should Mr. Suncat sell undecorated wedding cakes, or should he process further and sell decorated wedding cakes and why? Show all calculations to support your answer.
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