Jensen Manufacturing Company makes a partially completed assembly unit that it sells for $37 per unit....

 

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Jensen Manufacturing Company makes a partially completed assembly unit that it sells for $37 per unit. Normally, 43,000 units are sold each year. Variable unit cost data on the assembly are as follows: Direct material $10 8 Direct labor Variable manufacturing overhead 4 The company is now using only 70% of its normal capacity; it could fully use its normal capacity by processing the assembly further and selling it for $44 per unit. If the company does this, material and labor costs will each increase by $2 per unit and variable overhead will go up by $1 per unit. Fixed costs will increase from the current level of $160,000 to $225,000. Prepare an analysis showing whether Jensen should process the assemblies further. Jensen Manufacturing Company makes a partially completed assembly unit that it sells for $37 per unit. Normally, 43,000 units are sold each year. Variable unit cost data on the assembly are as follows: Direct material $10 8 Direct labor Variable manufacturing overhead 4 The company is now using only 70% of its normal capacity; it could fully use its normal capacity by processing the assembly further and selling it for $44 per unit. If the company does this, material and labor costs will each increase by $2 per unit and variable overhead will go up by $1 per unit. Fixed costs will increase from the current level of $160,000 to $225,000. Prepare an analysis showing whether Jensen should process the assemblies further.

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