Question

A company has extra capacity that can be used to produce a sophisticated furnitures which it has been buying for $ 1800 each. If the company makes the furnitures, it will incur materials cost of $ 600 per unit, labour costs of $ 500 per unit, and variable overhead costs of $ 200 per unit. The annual fixed cost associated with the unused capacity is $ 20,00,000. Demand over the next year is estimated at 10,000 units. Would it be profitable for the company to make the furnitures?​

Answer 1

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