Way Living Sells Unfinished Oak Shelves for $35 Each

question 110

Multiple Choice

Way Living sells unfinished oak shelves for $35 each.Budgeted sales for the year are expected to be 4,000 shelves.Each shelf requires 4 linear feet of wood to produce.The cost of wood is $4.80 per linear foot.Direct labor is $6.00 per shelf.Variable overhead and fixed overhead costs per unfinished shelf are $1.00 and $0.50 respectively.Way Living is considering whether it should stain the shelves so it can sell them for $48.00 each.It estimates it will sell 60% of the budgeted shelves 'stained' with the others unfinished.The direct costs of staining each shelf are $9.00.How much is the incremental effect on profit if the company stains the shelves?

• A)$16,000
• B)$67,200
• C)$52,000
• D)None of these answer choices are correct.

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Definitions:

Anchoring And Adjustment

A cognitive heuristic where individuals rely too heavily on an initial piece of information (anchor) when making decisions, adjusting insufficiently from that anchor.

Frame Dependence

The tendency of individuals to make different (and potentially inconsistent) decisions depending on how a question or problem is framed.

Aversion To Ambiguity

A preference to avoid uncertain or ambiguous situations, often reflected in decision-making processes.

Clustering Illusion

The cognitive bias of seeing patterns in random events.