Kramer Company is considering adding a new line of kitchen cabinets which would result in 800 units of sales at a selling price of per year of $3,500 per unit. Data concerning the unit production costs of the cabinets follow:

Variable manufacturing costs per unit $1,500

Variable selling costs per unit $350

Incremental fixed costs per year:

Manufacturing    $475,400

Selling $55,000

Allocated Common Costs per year:

Manufacturing $80,000

Selling and Administrative $112,000

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 $200,000 per year.

1. What is the annual financial advantage (disadvantage) of adding the new line of kitchen cabinets? Fully support your answer with appropriate calculations.

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? 

Answer rating: 100% (QA)

Solution We need to find the annual financial advantage or disadvantage of adding the new line of ki... View the full answer