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 $5,000. The company is evaluating the desirability of adding masts, sails, and rigging to the hulls prior to sale at an additional cost of $1,400. The completed sailboats could then be sold for $6,000 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

Answer 1

It is more profitable to sell the units as-is. Income will increase by $400 per unit.

Step-by-step explanation:

Giving the following information:

The hulls are sold to boatyards for $5,000.

Additional process= $1,400

The completed sailboats could then be sold for $6,000 each.

We will only take into account the incremental costs.

Sell as-is:

Effect on income= $5,000 increase

Additional process:

Effect on income= 6,000 - 1,400= $4,600 increase

It is more profitable to sell the units as-is. Income will increase by $400 per unit.