Question

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 $71. Variable finishing costs are expected to be an additional $7 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		$enter the sales price per unit in dollars		$enter the sales price per unit in dollars		$enter the sales price per unit in dollars
Cost per unit
Variable		enter the variable cost per unit in dollars		enter the variable cost per unit in dollars		enter the variable cost per unit in dollars
Fixed		enter the fixed cost per unit in dollars		enter the fixed cost per unit in dollars		enter the fixed cost per unit in dollars
Total		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts
Net income per unit		$enter net income per unit in dollars		$enter net income per unit in dollars		$enter net income per unit in dollars

The bookcases select an option                                                          should be processed furthershould be sold without further processing.

Answer 1

Sell	Process further	Net income(Increase or decrease)
Selling price per unit	59	71	12
Cost per unit
Variable	38	45	(7)
Fixed	10	10	-
Total	48	55	(7)
Net income per unit	11	16	5

Pine street should sell finished book cases. Because compared to unifinished book cases, Finished book cases increases netincome per unit by 5.

Answer 2

Analysis on a per unit basis showing whether Pine Street should sell unfinished or finished bookcase:

Particulars	Sell (Unfinished Bookcase)	Process Further (Finished Bookcase)	Net Income (Increase / Decrease)
	($)	($)	($)
Sales Price Per Unit	59	71	12
Cost Per Unit:
Variable	38	45	7
Fixed	10	10	0
Total	48	55	7
Net Income Per Unit (Sales Price Per Unit - Total Cost Per Unit)	11	16	5

Even though, Variable Cost is Increased by $7 Per Unit, Selling Finished Bookcase will return more Income to Pine Street, as Finished Bookcase will be sold at $71 ($12 More than Unfinished Bookcase). Net Income will increase by $5 Per Unit ($16 - $11), if Pine Street sell Finished Bookcase instead of Unfiinished Bookcase.

Therefore, Pine Street should Sell the Finished Bookcase after Further Processing to gain more income.

Also, Contribution Per Unit (Sales Price Per Unit - Variable Cost Per Unit) for Unfinished Bookcase is $21 ($59 - $38) (35.59 % of Sales), whereas for Finished Bokcase is $26 ($71 - $45) (36.62 % of Sales), proving it beneficial to further process bookcase and then sell it.