Lark Art Company sells unfinished wooden decorations at a price of $15.00. The c

Question

Lark Art Company sells unfinished wooden decorations at a price of $15.00. The current profit margin is $5.00 per decoration. The company is considering taking individual orders and customizing them for customers. To finish the decoration, the company would have to pay additional labor of $3.00 per unit, additional materials costing an average of $4.00 per unit, and fixed costs would increase by $1,500. If the company estimates that it can sell 600 units for $25.00 per unit each month, REQUIRED Determine if the company should start taking the orders?

Explanation / Answer

Yes, Company should start taking the orders, as company would make additional profit of $300 on the sale of above mentioned 600 Units.

Refer below working for calculation of $300 Profit :-

Particulars Current Proposed Unit No. Of Units           600           600 In No.s Selling Price             15             25 In $ Cost             10             10 In $ Additional Cost             -                 7 In $ Margin               5               8 In $ Additional Fixed Cost             -           1,500 In $ Profit        3,000        3,300 In $

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