Question

Sol Ltd. manufactures unfinished chairs that sell for $46.28 each and cost $20.00 to make. It currently produces 10164 chairs per year. The company has been considering finishing the chairs, which it could then sell the chairs for $61.47 each. However, it has been determined that only 7928 finished chairs could be sold; the other 2236 chairs would continue to be sold unfinished.

Costs per chair associated with processing further are:

	Direct materials	$4.27
	Direct labour	12.62
	Variable overhead	3.57
	Fixed overhead	4.65

If the company decides to process further, the incremental profit (loss) would be:

Select one:

a. $-78646

b. $116779

c. $-41781

d. $325127

Answer 1

Solution:-

Units Sold = 7928

Selling Price (Normal) = $ 46.28

Cost (Normal) = $ 20

Selling Price (With Processing) = $ 61.47

Cost (With Processing) = $ 20 + $ 4.17 + $ 12.90 + $ 2.89 = $ 39.96

Increment Profit or Loss = Profit with further processing - Profit without processing

= 7928 ($ 61.47 - $ 39.96) - 7928 ( $ 46.28 - $ 20)

= 7928 X $ 21.51 - 7928 X $ 26.28

= $ 170,531 - $ 208,348

= $ - 37,817

Correct answer is Loss of $ 37,817, But it is not Match with any Option given in Question.

There will be possibility of misprint in Question or Option given in question.

Above calculation is based on information given in question in right way.