BE26-5 Pine Street Inc. makes unfi nished bookcases that it sells for $62.

Production costs
are $36 variable and $10 fi xed. Because it has unused capacity, Pine Street is considering
fi nishing the bookcases and selling them for $70. Variable fi nishing costs are expected to
be $6 per unit with no increase in fi xed costs. Prepare an analysis on a per unit basis showing whether Pine Street should se
nished or fi nished bookcases.
Sell Unfinished Process Further

Sales price per unit $62 $70

Variable Cost 36 42
C.M 26 28
Fixed Cost 10 10
Net income per unit 16 18

The bookcases should be processed further because the incremental revenues exceed incremental costs by $2.00 per unit.
for $62. Production costs
Pine Street is considering
ng costs are expected to
showing whether Pine Street should sell unfi

Net Income
Increase(Decrease)
$8
6

0
2

ncremental costs by $2.00 per unit.

E26.5

Sell Process Further

(Basic Kit) (Stage 2 Kit)
Sales price per unit $30 $36
Direct materials 16 8
Direct Labor 0 9
Total 16 17
Net income per unit $14 $19

(1) The cost of materials decreases because Anna can make two Stage
2 Kits from the materials for a basic kit..

$9 per unit.

Anna should carry the Stage 2 Kits. The incremental revenue, $6, exceeds the incremental processing costs, $1. Thus, net inco
increase by processing the kits further
 Net Income
Increase(Decrease)
$6
8
9
1
$5

ecause Anna can make two Stage

ls for a basic kit..

nit.

eds the incremental processing costs, $1. Thus, net income will
g the kits further