Pine Street Inc. makes unfinished bookcases that it sells for $59. Production costs are $38 variable and $10 fixed. Because it has unused capacity, Pine Street is considering finishing the bookcases and selling them for $75. Variable finishing costs are expected to be $8 per unit with no increase in fixed costs. Prepare an analysis on a per unit basis showing whether Pine Street should sell unfinished or finished bookcases. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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**Homework for Ch 20 LO 4 - Sell vs. Process Further**

**Question 1 of 2**

Pine Street Inc. makes unfinished bookcases that it sells for $59. Production costs are $38 variable and $10 fixed. Because it has unused capacity, Pine Street is considering finishing the bookcases and selling them for $75. Variable finishing costs are expected to be $8 per unit with no increase in fixed costs. Prepare an analysis on a per unit basis showing whether Pine Street should sell unfinished or finished bookcases. **(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)**

|                     | Sell | Process Further | Net Income Increase (Decrease) |
|---------------------|------|-----------------|-------------------------------|
| Sales price per unit| $59  | $75             | $-16                          |
| Cost per unit       |      |                 |                               |
| Variable            | 38   | 8               | 30                            |
| Fixed               | 10   | 0               | 10                            |
| Total               | 48   | 8               | 40                            |
| Net income per unit | $11  | $67             | $-56                          |

**Conclusion:** The bookcases *should be processed further*.
Transcribed Image Text:**Homework for Ch 20 LO 4 - Sell vs. Process Further** **Question 1 of 2** Pine Street Inc. makes unfinished bookcases that it sells for $59. Production costs are $38 variable and $10 fixed. Because it has unused capacity, Pine Street is considering finishing the bookcases and selling them for $75. Variable finishing costs are expected to be $8 per unit with no increase in fixed costs. Prepare an analysis on a per unit basis showing whether Pine Street should sell unfinished or finished bookcases. **(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)** | | Sell | Process Further | Net Income Increase (Decrease) | |---------------------|------|-----------------|-------------------------------| | Sales price per unit| $59 | $75 | $-16 | | Cost per unit | | | | | Variable | 38 | 8 | 30 | | Fixed | 10 | 0 | 10 | | Total | 48 | 8 | 40 | | Net income per unit | $11 | $67 | $-56 | **Conclusion:** The bookcases *should be processed further*.
Expert Solution
Step 1

Whether a product should be further processed or not?

 

If further processing cost is less than the difference between sales price at split off point and sales price after processed further. 

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