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28 April, 16:15

A company has the choice of either selling 1,000 unfinished units as is or completing them. The company could sell the unfinished units as is for $4.00 per unit. Alternatively, it could complete the units with incremental costs of $1.00 per unit for direct materials, $2.00 per unit for direct labor, and $1.50 per unit for overhead, and then sell the finished units for $8.00 each. What should the company do?

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  1. 28 April, 16:23
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    It is more convenient to sell the units unfinished by $500.

    Explanation:

    Giving the following information:

    Units = 1,000

    Unfinished:

    Selling price = $4.00 per unit.

    Complete:

    Incremental costs = $1.00 per unit for direct materials, $2.00 per unit for direct labor, and $1.50 per unit for overhead

    Selling price = $8.00 each.

    We need to calculate the gross profit of each option and choose the more convenient:

    Unfinished:

    Gross profit = 1,000*4 = $4,000

    Complete:

    Gross profit = 1,000 * (8 - 4.5) = $3,500

    It is more convenient to sell the units unfinished by $500.
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