Question

Mesa Verde manufactures unpainted furniture for the the do-it yourself (DIY) . It currently sells a table for $66, production costs per unit are $45 variable and $11 fixed.

Mesa is considering staining and sealing the table to sell it for $104. Variable costs per unit to finish each table are expected to be an additional $20 per unit, and fixed

costs are expected to be an additional $2 per unit.

Prepare an analysis showing whether Mesa Verde should sell unpainted or finished tables.

(SELL ) (Process further ) ( Net Income ( increase/ decrease)

Sell price per unit $_____ $_______ $ ________________________

Cost per unit Variable $ _________ $ ______________ $________________________-

Fixed _____________ ___________ $__________________

Total $ ____________ $ ___________ $ ________________________

Net Income per uni t $_______________ $_______________ $_____________________

The table should be ________________________

Answer 1

Answer)

Statement showing Analysis of Whether the furniture should be sold unpainted or as finished tables

Particulars	Sell Unpainted Furniture (In $)	Process Further and sell and Finished Tables (In $)	Differential (In $)
Selling Price	66.00	104.00	38.00
Less:
Variable Cost	45.00	65.00	20.00
Fixed Cost	11.00	13.00	2.00
Net Income	10.00	26.00	16.00

Alternatively, the following statement of incremental cost and benefit may be prepared

Particulars	Sell Finished tables (In $)
Increase in Selling Price( $ 104 - $ 66)	38.00
Less:
Increase in Variable Cost ($ 65-$ 45)	20.00
Increase in Fixed Cost ($ 13 - $ 11)	2.00
Net Additional Income	16.00

Decision: From the perusal of above tables, it is evident that if the company plans to process further and sell finished tables, it will earn additional net income of $ 16.00 per unit. Therefore, the company should process further and sell finished tables.