Woodchuck currently manufactures one model of very plain, unfinished oak bookcase. The com¬ pany is considering changing this product by adding a long-wearing finish and more appealing trim. A summary of the expected costs and revenues for Woodchuck’s two options follows:

Required:
1. Determine whether Woodchuck should process the unfinished bookcases further or sell them unfinished. Include the difference in net profit from processing the bookcases further.
2. Suppose that choosing to process the bookcases further would reduce the number of units sold to 5,000. Determine the impact of the decision to process further on Woodchuck’s profit.

Transcribed Image Text:

Unfinished Bookcase Finished Bookcase Estimated demand 8,000 units 8,000 units Estimated sales price $50.00 $90.00 Estimated cost per unit Direct materials $11.00 $14.00 Direct labor 8.00 18.00 Variable manufacturing overhead 0.50 1.50 Fixed manufacturing overhead 5.00 5.00 Unit manufacturing cost $24.50 $38.50 Additional implementation cost $75,000