Angie Donohue recently opened her own basketweaving studio.
She sells finished baskets in addition to the raw materials needed by customers
to weave baskets of their own. Angie has put together a variety of raw material
kits, each including materials at various stages of completion. Unfortunately,
owing to space limitations, Angie is unable to carry all varieties of kits
originally assembled and must choose between two basic packages.
The basic introductory kit includes undyed, uncut reeds (with dye included) for weaving one basket. This basic package costs Angie $11.70 and sells for $26.55. The second kit, called Stage 2, includes cut reeds that have already been dyed. With this kit the customer need only soak the reeds and weave the basket. Angie is able to produce the second kit by using the basic materials included in the first kit and adding one hour of her own time (to produce two kits), which she values at $17.60 per hour. Because she is more efficient at cutting and dying reeds than her average customer, Angie is able to make two kits of the dyed reeds, in one hour, from one kit of undyed reeds. The kit of dyed and cut reeds sells for $34.64.
Determine whether Angie’s basketweaving shop should carry the basic introductory kit with undyed and uncut reeds, or the Stage 2 kit with reeds already dyed and cut. Prepare an incremental analysis to support your answer. (Round answers to 2 decimal places, e.g. $2.45. If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.)
The basic introductory kit includes undyed, uncut reeds (with dye included) for weaving one basket. This basic package costs Angie $11.70 and sells for $26.55. The second kit, called Stage 2, includes cut reeds that have already been dyed. With this kit the customer need only soak the reeds and weave the basket. Angie is able to produce the second kit by using the basic materials included in the first kit and adding one hour of her own time (to produce two kits), which she values at $17.60 per hour. Because she is more efficient at cutting and dying reeds than her average customer, Angie is able to make two kits of the dyed reeds, in one hour, from one kit of undyed reeds. The kit of dyed and cut reeds sells for $34.64.
Determine whether Angie’s basketweaving shop should carry the basic introductory kit with undyed and uncut reeds, or the Stage 2 kit with reeds already dyed and cut. Prepare an incremental analysis to support your answer. (Round answers to 2 decimal places, e.g. $2.45. If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.)
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Sell (Basic Kit) |
Process Further (Stage 2 Kit) |
Net
Income
Increase (Decrease) |
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Sales per unit
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$
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$
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$
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Costs per unit
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$
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$
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$
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Total
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$
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$
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$
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Net income/(loss) per unit
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$
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$
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$
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Angie’s basketweaving shop should carry the .
