Wang Fabrics is a cloth manufacturing company based in China, which imports threads of various fibers and exports both bolts of cloth and finished products. Wang recently began purchasing and processing Rayon fiber, which is used in many sporting clothes. Wang is considering whether to sell bolts of Rayon cloth or to further process the cloth into sporting outfits.
Information regarding the production process for Rayon is as follows:
To produce a bolt of cloth:
Direct Materials: $500
Direct Labor: 30 hours at $20/hour
Variable Overhead: 50 machine hours at a rate of $13/machine hour
Fixed overhead: $5/machine hour
Selling price of a bolt of cloth: $2,500
Extra costs to further process a bolt of cloth into finished goods:
Direct Materials: $50
Direct Labor: 125 hours, at $20/hour
Variable Overhead: 10 machine hours, at a rate of $13/machine hour
Fixed overhead: $5/machine hour
Selling price of items produced from one bolt of cloth: $5,500
What would be the differential income of processing the cloth further? Should Wang process the cloth further or just sell the bolts of cloth?

Question

Wang Fabrics is a cloth manufacturing company based in China, which imports threads of various fibers and exports both bolts of cloth and finished products. Wang recently began purchasing and processing Rayon fiber, which is used in many sporting clothes. Wang is considering whether to sell bolts of Rayon cloth or to further process the cloth into sporting outfits. 
Information regarding the production process for Rayon is as follows:
To produce a bolt of cloth:
Direct Materials: $500
Direct Labor: 30 hours at $20/hour
Variable Overhead: 50 machine hours at a rate of $13/machine hour
Fixed overhead: $5/machine hour
Selling price of a bolt of cloth: $2,500
Extra costs to further process a bolt of cloth into finished goods:
Direct Materials: $50
Direct Labor: 125 hours, at $20/hour
Variable Overhead: 10 machine hours, at a rate of $13/machine hour
Fixed overhead: $5/machine hour
Selling price of items produced from one bolt of cloth: $5,500
What would be the differential income of processing the cloth further? Should Wang process the cloth further or just sell the bolts of cloth?

Quizplus · Accepted Answer

The Answer of Wang Fabrics is a cloth manufacturing company based in China, which imports threads of various fibers and exports both bolts of cloth and finished products. Wang recently began purchasing and processing Rayon fiber, which is used in many sporting clothes. Wang is considering whether to sell bolts of Rayon cloth or to further process the cloth into sporting outfits. 
Information regarding the production process for Rayon is as follows:
To produce a bolt of cloth:
Direct Materials: $500
Direct Labor: 30 hours at $20/hour
Variable Overhead: 50 machine hours at a rate of $13/machine hour
Fixed overhead: $5/machine hour
Selling price of a bolt of cloth: $2,500
Extra costs to further process a bolt of cloth into finished goods:
Direct Materials: $50
Direct Labor: 125 hours, at $20/hour
Variable Overhead: 10 machine hours, at a rate of $13/machine hour
Fixed overhead: $5/machine hour
Selling price of items produced from one bolt of cloth: $5,500
What would be the differential income of processing the cloth further? Should Wang process the cloth further or just sell the bolts of cloth?

Wang Fabrics Is a Cloth Manufacturing Company Based in China