4,000 spindles of yarn are produced. The spindles of yarn can then be sold directly to stores or they can be used by Austin Wool Products to make afghans. Each spindle of yarn sells for $12; variable...

4,000 spindles of yarn are produced. The spindles of yarn can then be sold directly to stores or

they can be used by Austin Wool Products to make afghans. Each spindle of yarn sells for $12;

variable costs are $8 to make a spindle of yarn, and fixed costs to make 4,000 spindles of yarn

total $8,000.



The yarn can also be used to make afghans. Each afghan sells for $32 and requires one and a

quarter (1.25) spindles of yarn. The additional costs incurred to make afghans from yarn include

$9 per afghan in variable costs, and $20,000 in additional fixed costs.





a. In order to maximize profits, should Austin sell the spindles of yarn or further process the

yarn into afghans? How much operating income would Austin generate on a monthly

basis by following your suggestion?