The Cabinet Shoppe is considering the addition of a new line of kitchen cabinets
ID: 2474906 • Letter: T
Question
The Cabinet Shoppe is considering the addition of a new line of kitchen cabinets to its current product lines. Expected cost and revenue data for the new cabinets are as follows:
If the new cabinets are added, it is expected that the contribution margin of other product lines at the cabinet shop will drop by $22,800 per year.
If the new cabinet product line is added next year, the increase in net operating income resulting from this decision would be:
$422,200
$445,000
$556,800
$398,600
Annual sales 6,400 units Selling price per unit $250 Variable costs per unit: Production $134 Selling $29 Avoidable fixed costs per year: Production $45,900 Selling $65,900 Allocated common fixed costs per year $46,400Explanation / Answer
422,200
*
Units $ Selling price per unit 250 6,400 1,600,000 Variable costs per unit: Production 134 6,400 857,600 Selling 29 6,400 185,600 Contribution Margin 556,800 Avoidable fixed costs per year: Production (45,900) Selling (65,900) 445,000 Contribution loss 22,800 422,200