Key Corporation is considering the addition of a new product. The expected cost and revenue data for the new product are as follows: 2,500 units $ 304 Annual sales Selling price per unit Variable costs per unit: Production Selling Avoidable fixed costs per year: Production $ 125 $49 $ 50,000 $ 75,000 $ 55,000 Selling Allocated common fixed corporate costs per year If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product. If the new product is added next year, the financial advantage (disadvantage) resulting from this decision would be:

Key Corporation is considering the addition of a new product. The expected cost and revenue data for the new product are as follows: 2,500 units $ 304 Annual sales Selling price per unit Variable costs per unit: Production Selling Avoidable fixed costs per year: Production $ 125 $49 $ 50,000 $ 75,000 $ 55,000 Selling Allocated common fixed corporate costs per year If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product. If the new product is added next year, the financial advantage (disadvantage) resulting from this decision would be:

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 40P

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