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Waterway Industries is starting business and is unsure of whether to sell its product assembled

Waterway Industries is starting business and is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $75 and Waterway Industries would sell it for $145. The cost to assemble the product is estimated at $30 per unit and Waterway Industries believes the market would support a price of $181 on the assembled unit. What is the correct decision using the sell or process further decision rule and why?

Answer:

Process further because profits will be greater by $6 per unit.

Explanation

Cost$75$75
Further processing030
Total Cost75105
Selling Price145181
Profit (S – C) ($145 – 75), ($181 – 1057076
Incremental profit=  76 – 70 = $6

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