Cabin Creek Company is considering adding a new line of kitchen cabinets. The company's accountant provided the following estimated data for these cabinets: Annual sales Selling price per unit Variable manufacturing costs per unit Variable selling costs per unit Incremental fixed costs per year: Manufacturing Selling Allocated common costs per year: Manufacturing Selling and administrative 800 units $ 3,690 $ 1,690 $ 540 $ 494,400 $ 74,000 $ 99,000 $ 131,000 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 $238,000 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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Cabin Creek Company is considering adding a new line of kitchen cabinets. The company's accountant provided the following
estimated data for these cabinets:
Annual sales
Selling price per unit
Variable manufacturing costs per unit
Variable selling costs per unit
Incremental fixed costs per year:
Manufacturing
Selling
Allocated common costs per year:
Manufacturing
Selling and administrative
800 units
$ 3,690
$ 1,690
$ 540
$ 494,400
$ 74,000
$ 99,000
$ 131,000
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 $238,000 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?
Transcribed Image Text:Cabin Creek Company is considering adding a new line of kitchen cabinets. The company's accountant provided the following estimated data for these cabinets: Annual sales Selling price per unit Variable manufacturing costs per unit Variable selling costs per unit Incremental fixed costs per year: Manufacturing Selling Allocated common costs per year: Manufacturing Selling and administrative 800 units $ 3,690 $ 1,690 $ 540 $ 494,400 $ 74,000 $ 99,000 $ 131,000 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 $238,000 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?
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