Cost-Volume-Profit with Multiple Products, Sales Mix Changes, Changes in Fixed and Variable Costs Artistic Woodcrafting Inc. began several years ago as a one-person, cabinet-making operation. Employees were added as the business expanded. Last year, sales volume totaled $850,000. Volume for the first five months of the current year totaled $600,000, and sales were expected to be $1.6 million for the entire year. Unfortunately, the cabinet business in the region where Artistic is located is highly competitive. More than 200 cabinet shops are all competing for the same business. Artistic currently offers two different quality grades of cabinets: Grade I and Grade II, with Grade I being the higher quality. The average unit selling prices, unit variable costs, and direct fixed costs are as follows: Grade I Grade II $3,400 $2,686 1,600 1,328 Common fixed costs (fixed costs not traceable to either cabinet) are $35,000. Currently, for every three Grade I cabinets sold, seven Grade II cabinets are sold. Required: Grade I Grade II Unit Price Unit Variable Cost Note: Round your answers to the nearest whole number. 1. Calculate the number of Grade I and Grade II cabinets that are expected to be sold during the current year. 224 ✓ units Grade I Grade II 524 ✓ units Direct Fixed Cost 2. Calculate the number of Grade I and Grade II cabinets that must be sold for Artistic to break even. 168 $95,000 ✓ units 392 ✓ units 95,000
Cost-Volume-Profit with Multiple Products, Sales Mix Changes, Changes in Fixed and Variable Costs Artistic Woodcrafting Inc. began several years ago as a one-person, cabinet-making operation. Employees were added as the business expanded. Last year, sales volume totaled $850,000. Volume for the first five months of the current year totaled $600,000, and sales were expected to be $1.6 million for the entire year. Unfortunately, the cabinet business in the region where Artistic is located is highly competitive. More than 200 cabinet shops are all competing for the same business. Artistic currently offers two different quality grades of cabinets: Grade I and Grade II, with Grade I being the higher quality. The average unit selling prices, unit variable costs, and direct fixed costs are as follows: Grade I Grade II $3,400 $2,686 1,600 1,328 Common fixed costs (fixed costs not traceable to either cabinet) are $35,000. Currently, for every three Grade I cabinets sold, seven Grade II cabinets are sold. Required: Grade I Grade II Unit Price Unit Variable Cost Note: Round your answers to the nearest whole number. 1. Calculate the number of Grade I and Grade II cabinets that are expected to be sold during the current year. 224 ✓ units Grade I Grade II 524 ✓ units Direct Fixed Cost 2. Calculate the number of Grade I and Grade II cabinets that must be sold for Artistic to break even. 168 $95,000 ✓ units 392 ✓ units 95,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:3. Artistic can buy computer-controlled machines that will make doors, drawers, and frames. If the machines are purchased, the variable costs for each type of cabinet
will decrease by 9%, but common fixed cost will increase by $44,000.
Compute the effect on operating income.
73,600 X Increase
Calculate the new break-even point. Assume the machines are purchased at the beginning of the sixth month. Fixed costs for the company are incurred uniformly
throughout the year.
Grade I
Grade II
165
385
units
✓ units
Transcribed Image Text:Cost-Volume-Profit with Multiple Products, Sales Mix Changes, Changes in Fixed and Variable Costs
Artistic Woodcrafting Inc. began several years ago as a one-person, cabinet-making operation. Employees were added as the business expanded. Last year, sales volume
totaled $850,000. Volume for the first five months of the current year totaled $600,000, and sales were expected to be $1.6 million for the entire year. Unfortunately, the
cabinet business in the region where Artistic is located is highly competitive. More than 200 cabinet shops are all competing for the same business.
Artistic currently offers two different quality grades of cabinets: Grade I and Grade II, with Grade I being the higher quality. The average unit selling prices, unit variable
costs, and direct fixed costs are as follows:
Unit Price Unit Variable Cost
$3,400
$2,686
1,600
1,328
Common fixed costs (fixed costs not traceable to either cabinet) are $35,000. Currently, for every three Grade I cabinets sold, seven Grade II cabinets are sold.
Required:
Grade I
Grade II
Grade I
Note: Round your answers to the nearest whole number.
1. Calculate the number of Grade I and Grade II cabinets that are expected to be sold during the current year.
Grade II
Grade I
224 units
Grade II
524 ✓ units
2. Calculate the number of Grade I and Grade II cabinets that must be sold for Artistic to break even.
Direct Fixed Cost
168 units
392
$95,000
95,000
✓ units
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