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 $ 3,690 Variable manufacturing costs per unit $ 1,690 Variable selling costs per unit $ 540 Incremental fixed costs per year: Manufacturing $ 494,400 Selling $ 74,000 Allocated common costs per year: Manufacturing $ 99,000 Selling and administrative $ 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: What is the annual financial advantage (disadvantage) of adding the new line of kitchen cabinets?
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 $ 3,690 Variable manufacturing costs per unit $ 1,690 Variable selling costs per unit $ 540 Incremental fixed costs per year: Manufacturing $ 494,400 Selling $ 74,000 Allocated common costs per year: Manufacturing $ 99,000 Selling and administrative $ 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: What is the annual financial advantage (disadvantage) of adding the new line of kitchen cabinets?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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 $ 3,690
Variable manufacturing costs per unit $
1,690
Variable selling costs per unit $ 540
Incremental fixed costs per year:
Manufacturing $ 494,400
Selling $ 74,000
Allocated common costs per year:
Manufacturing $ 99,000
Selling and administrative $ 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:
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?
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