Reference no: EM132971454

College Collections, Inc. sells unfinshed furniture such as lofts, beds, desks, and dressers in an unfinished form from tents set up at large universities during move in as well as online. The company has been very successful with its unfinished collegiate line since many students (and non-students) like the option to finish the furniture in the manner of their choosing while some students prefer the unfinished look. College Collections is considering processing some of the unfinished furniture by applying stains, varnishes, clearcoats, or paint. They are considering starting with one of their more popular items on campuses - the loft bed. The unit costs to manufacture a single loft bed in unfinished form includes: $250 in direct materials, $150 in direct labor, $25 in variable manufacturing overhead, and $35 in fixed manufacturing overhead. An unfinished loft sells for $600.

• Manufacturing a loft in finished form will add unit costs of $80 in direct materials, $60 in direct labor, and $8 in variable manufacturing overhead. The firm has excess capacity sufficient to finish lofts as well as to sell them unfinished. Market research shows that the skateboard in finished form can be sold for $800.

Required:

Problem 1: Based on relevant cost analysis, should Collegiate Collections sell the lofts in unfinished form or process them further prior to selling? (enter yes or no)

Problem 2: What is the incremental difference to Collegiate Collections of your decision?