11 Sell or process further decision 1o6 t Sitten manufactured 300 chairs for las

Question

11 Sell or process further decision 1o6 t Sitten manufactured 300 chairs for last season sales, that not purchased by customers. The manufacturing costs of the chairs were Direct materials Direct labour Variable overhead Fixed overhead $300 230 110 120 The chairs normally sell for $1000. The company can rework them, which will cost $50 for direct materials, $140 for direct labour and $60 for variable overhead. In addition, fixed overhead will be applied at the rate of 80 per cent of direct labour cost. By doing so, the chairs will be sold for $800. Alternatively, the company could sell the chairs 'as is' fora selling price of $560. Required What should management do to maximise profits?

Explanation / Answer

Sell as is Process further Revenue 168000 240000 Expenses: Direct materials 15000 Direct labour 42000 Variable overhead 18000 Income(loss) 168000 165000 The management should sell as is

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