All Dogs Co. manufactures dog houses. One of their products is an unfinished dog house...
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All Dogs Co. manufactures dog houses. One of their products is an unfinished dog house that is shipped as parts and the consumer puts the dog house together. The dog house sells for $200. They could finish the dog houses and sell them for $300. The costs to produce the unfinished dog house follow:
Direct materials $100
Direct labor 40
Variable manufacturing overhead 5
Fixed manufacturing overhead 5
Total manufacturing costs per unit $150
If All Dogs finishes the dog houses direct materials costs would increase $10, direct labor $40, variable manufacturing overhead $2. There would be no increase in fixed manufacturing costs.
Should All Dogs finish the dog houses and sell them at the higher price?
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