Cabin Creek Company is considering adding of a new line of kitchen cabinets. The companys accountant provided
Fantastic news! We've Found the answer you've been seeking!
Question:
Cabin Creek Company is considering adding of a new line of kitchen cabinets. The company’s accountant provided the following estimated data for these cabinets:
Annual sales | $ 800 | units |
---|---|---|
Selling price per unit | $ 3,600 | |
Variable manufacturing costs per unit | $ 1,600 | |
Variable selling costs per unit | $ 450 | |
Incremental fixed costs per year: | ||
Manufacturing | $ 485,400 | |
Selling | $ 65,000 | |
Allocated common costs per year: | ||
Manufacturing | $ 90,000 | |
Selling and administrative | $ 122,000 |
If the kitchen cabinets are added as a new product line, the company expects that the contribution margin earned from selling its other products will decrease by $220,000 per year.
Required:
- What is the annual financial advantage (disadvantage) of adding the new line of kitchen cabinets?
- What is the lowest selling price per unit that could be charged for the cabinets and still make it economically desirable for the company to add the new product line?
Related Book For
Horngrens Financial and Managerial Accounting
ISBN: 978-0133866292
5th edition
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura
Posted Date: