Patty's Mailbox Company Produces a Standard Mailbox with Variable Manufacturing

question 231

Essay

Patty's Mailbox Company produces a standard mailbox with variable manufacturing costs of $18 per unit. The selling price of the standard mailbox is $25 per unit. The fixed manufacturing overhead cost is $67,000. A normal production run includes 100,000 units. Patty's Mailbox Company has discovered an additional process to change the standard mailbox into a deluxe mailbox. Additional costs are estimated at $4 per unit. The deluxe mailbox would sell for $35. Additional fixed manufacturing overhead cost of $23,000 would be incurred if the deluxe mailbox is produced. There would be no change in the number of units produced.
Make an analysis to determine if Patty's Mailbox Company should continue to produce and sell the standard mailbox or change the standard mailbox into a deluxe mailbox.