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 $3,540 $ 1,540 $ 390 $ 479,400 $ 59,000 $ 84,000 $ 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?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
![Exercise 13-11 (Algo) Adding a Product Line [LO13-2]
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
$ 3,540
$ 1,540
$ 390
$ 479,400
$ 59,000
$ 84,000
$ 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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F01d01b29-ede7-42ba-8dcd-8c0b18e94cc8%2F241312c2-6411-4fc1-ab5d-1a71f5362c9f%2Ffhst0lg_processed.png&w=3840&q=75)
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