Homeowners Heroes Inc., manufactures household products such as windows, light fixtures, ladders, and work tables. During the
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Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.00
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.00
Variable overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00
Fixed overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 2.00
Total cost per window . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20.00
Homeowners Heroes can sell the 5,000 windows at a liquidation price of $20.00 per window, but it will incur a packaging and shipping charge of $7.50 per window.
Required:
1. Identify the relevant costs and revenues for the liquidation sale alternative. Is Homeowners Heroes better off accepting the liquidation price rather than doing nothing?
2. Assume that Model 10X can be reprocessed to another size window, Model 20X, which will require the same amount of labor and overhead as was required to initially produce, but sells for only $33. Determine the most profitable course of action liquidate or reprocess.
Liquidation
Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due....
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