North York Statue Company Makes Miniature Mountie Statues from Cast

question 130

Essay

North York Statue Company makes miniature Mountie statues from cast iron.Sales total 40,000 units a year and the company is operating at full capacity.The statues are finished either rough or polished, with an average demand of 60 percent rough and 40 percent polished.Iron ingots, the direct material, costs $6 per kilogram.Processing costs are $200 to convert 20 kilograms into 40 statues; polishing adds $3 per statue.Rough statues are sold for $15 each and polished statues can be sold for $18 or engraved for an additional cost of $5.Engraved statues can then be sold for $30.Required:
Determine if the engraving process is cost effective.

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Definitions:

Marginal Cost

The increment in total pricing necessary for the creation of one more unit of any good or service.

Marginal Revenue

The supplementary earnings obtained by selling an extra unit of a good or service.

Marginal Revenue Curve

A graphical representation showing the additional revenue that is generated by selling one more unit of a good or service.

Marginal Revenue

The income enhancement from the sale of one more unit of a product or service.