DePaulis Furniture Manufacturer makes unfinished furniture for sale to customers from its own...
Question:
DePaulis Furniture Manufacturer makes unfinished furniture for sale to customers from its own stores. Recently, the company has been considering taking production one step further and finishing some of the furniture to sell as finished furniuture. To analyze the problem, DePaulis is going to look at only one product, a very popular dining room chair. The chair can be produced now for $65 and sells for $85 unfinished. If DePaulis were to finish the chair, the cost would increase to $90, but the company could sell the finished chair for $125. Should DePaulis finish the chairs or continue to sell the unfinished? Show computations to support your decision.
Relevant Costing
Selling or process further decisions require the use of relevant costing to determine total costs of each alternative after split-off. Split-off is the point at which two or more products are produced from a joint process and costs for each product becomes identifiable. If a company is able to generate additional profits from further processing after split-off point as compared to selling the product in its current form, a company will choose to further process the existing product. It is important to note that costs before split-off point, i.e joint costs are sunk costs and therefore not relevant to the decision.
Answer and Explanation: 1
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View this answerCurrent profit per unfinished chair = 85 - 65 = $20 per chair
Expected profit per finished chair = 125 - 90 = $35 per chair
Based on quantitative...
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Relevant Costs to Selling or Processing Materials Further
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Chapter 9 / Lesson 10
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Balancing costs in relation to selling or processing materials further will depend on how the other aspects of production are performing. Learn more about whether to sell or process materials further, considering relevant costs, making a decision and relevant examples.
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