Question
Sell or process further: Fresh as a Daisy, Inc. manufactures flower pots. It can produce and sell plain, unpainted pots for $25 each and the
Sell or process further: Fresh as a Daisy, Inc. manufactures flower pots. It can produce and sell plain, unpainted pots for $25 each and the manufacturing costs incurred for the plain, unpainted pots are as follows:
Variable manufacturing costs per pot: $8.25
Fixed manufacturing cost per pot: $2.90
Variable Selling and admin costs per pot: $1.75
Fixed Selling and admin costs per pot: $3.60
Fresh as a Daisy can also process these pots further by painting them with special designs for customers. It could sell these painted pots for $35 each. The additional variable manufacturing costs of painting and finishing the pots would be $6.25 per pot and the additional variable selling and admin costs of the painted pots would be $0.40 per pot. Assume there would be no additional fixed manufacturing costs nor any additional fixed selling and administrative costs.
What is the financial advantage (disadvantage) per unit for the company if it processes the flower pots further by painting them? You must show all of your work.
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