Question

Oriole Company is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $24 and Oriole would sell it for $54. The cost to assemble the product is estimated at $18 per unit and the company believes the market would support a price of $71 on the assembled unit. What decision should Oriole make?

Answer 1

Answer:

Sell before assembly, the company will be better off by $1 per unit.

Explanation:

Given that,

Unit cost of the unassembled product = $24

Selling price of unassembled product = $54

Estimated cost to assemble the product = $18

company believes the market would support a price (on the assembled unit) = $71

Profit from Unassembled product:

= Selling price - cost

= $54 - $24

= $30

Assembled product cost = $24 + $18

                                         = $42

Profit from assembled product:

= Selling price - cost

= $71 - $42

= $29

Hence, Sell before assembly, the company will be better off by $1 per unit.