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 sales800unitsSelling price per unit$ 3,660 Variable manufacturing costs per unit$ 1,660 Variable selling costs per unit$ 510 Incremental fixed costs per year: Manufacturing$ 491,400 Selling$ 71,000 Allocated common costs per year: Manufacturing$ 96,000 Selling and administrative$ 128,000 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 $232,000 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?

The objective of the question is to determine the financial impact of adding a new product line to…

Answered: Cabin Creek Company is considering…

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 16E

Annual sales	800	units
Selling price per unit	$ 3,660
Variable manufacturing costs per unit	$ 1,660
Variable selling costs per unit	$ 510
Incremental fixed costs per year:
Manufacturing	$ 491,400
Selling	$ 71,000
Allocated common costs per year:
Manufacturing	$ 96,000
Selling and administrative	$ 128,000

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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