Eddy Company Is Starting Business and Is Unsure of Whether

question 72

Multiple Choice

Eddy Company is starting business and is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $60 and Eddy Company would sell it for $135. The cost to assemble the product is estimated at $27 per unit and Eddy Company believes the market would support a price of $174 on the assembled unit. What is the correct decision using the sell or process further decision rule?

• A) Sell before assembly, the company will be better off by $27 per unit.
• B) Sell before assembly, the company will be better off by $39 per unit.
• C) Process further, the company will be better off by $39 per unit.
• D) Process further, the company will be better off by $12 per unit.

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Definitions:

Compounded Annually

Interest calculation method where interest is added to the principal sum at the end of each year, and the subsequent interest calculation includes the previously accumulated interest.

Simple Interest

Interest calculated on the principal portion of a loan or deposit, without compounding.

Interest

Payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum, at a particular rate.