Exercise 6-11 (Algo) Adding a Product Line [LO 6-2]

Cabin Creek Company is considering adding of a new line of kitchen cabinets. The companys accountant provided the following estimated data for these cabinets:

Annual sales	$ 800	units
Selling price per unit	$ 3,540
Variable manufacturing costs per unit	$ 1,540
Variable selling costs per unit	$ 390
Incremental fixed costs per year:
Manufacturing	$ 479,400
Selling	$ 59,000
Allocated common costs per year:
Manufacturing	$ 84,000
Selling and administrative	$ 116,000

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 $208,000 per year.

Required:

1. What is the annual financial advantage (disadvantage) of adding the new line of kitchen cabinets?
2. 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?