3-5: The year is 2001. Arthur Andersen has ordered some custom-made furniture from Lane Furniture Company. Lane recently completed manufacturing ten executive desks that had the Arthur Andersen ogo carved into the front and sides of the desk. Lane's manufacturing costs were $2,000 per desk, which consist of $400 in materials, $600 in labor, and $1,000 of other manufacturing-related costs. Arthur Andersen had agreed to pay $3,000 per desk, but has now informed Lane that it can no longer honor the agreement. Lane's options are as follows. Lane can rework the desks, removing the Arthur Andersen logo at a labor cost of $750 per desk, and sell each desk for $1,500. Alternatively, Lane can sell each desk, as is, to collectors, for $800. Should Lane (1) rework the desks and sell them; (2) sell them with the logo to collectors; or (3) not sell che desks at all? Lane should sell the desk to collectors. Lane will generate an incremental profit of $800 per desk relative to not selling the desks at all, and an incremental $50 relative to removing the logo and then selling the desks
3-5: The year is 2001. Arthur Andersen has ordered some custom-made furniture from Lane Furniture Company. Lane recently completed manufacturing ten executive desks that had the Arthur Andersen ogo carved into the front and sides of the desk. Lane's manufacturing costs were $2,000 per desk, which consist of $400 in materials, $600 in labor, and $1,000 of other manufacturing-related costs. Arthur Andersen had agreed to pay $3,000 per desk, but has now informed Lane that it can no longer honor the agreement. Lane's options are as follows. Lane can rework the desks, removing the Arthur Andersen logo at a labor cost of $750 per desk, and sell each desk for $1,500. Alternatively, Lane can sell each desk, as is, to collectors, for $800. Should Lane (1) rework the desks and sell them; (2) sell them with the logo to collectors; or (3) not sell che desks at all? Lane should sell the desk to collectors. Lane will generate an incremental profit of $800 per desk relative to not selling the desks at all, and an incremental $50 relative to removing the logo and then selling the desks
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:3-5: The year is 2001. Arthur Andersen has ordered some custom-made furniture from Lane Furniture
Company. Lane recently completed manufacturing ten executive desks that had the Arthur Andersen
logo carved into the front and sides of the desk. Lane's manufacturing costs were $2,000 per desk,
which consist of $400 in materials, $600 in labor, and $1,000 of other manufacturing-related costs.
Arthur Andersen had agreed to pay $3,000 per desk, but has now informed Lane that it can no longer
honor the agreement. Lane's options are as follows. Lane can rework the desks, removing the Arthur
Andersen logo at a labor cost of $750 per desk, and sell each desk for $1,500. Alternatively, Lane can
sell each desk, as is, to collectors, for $800.
Should Lane (1) rework the desks and sell them; (2) sell them with the logo to collectors; or (3) not sell
the desks at all?
Lane should sell the desk to collectors. Lane will generate an incremental profit of $800 per
desk relative to not selling the desks at all, and an incremental $50 relative to removing the logo
and then selling the desks.
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