Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 15

Sell or process further? Lakeside, Inc., produces a product that currently sells for $36 per unit. Current production costs per unit include direct materials, $10; direct labor, $12; variable overhead, $5; and fixed overhead, $5. Product engineering has determined that certain production changes could refine the product quality and functionality. These new production changes would increase material and labor costs by 20% per unit.
Required:
If Lakeside could sell the refined version of its product for $40 per unit, should it be processed further?