Question

Keep Your Memories manufactures pre-made scrapbook pages for scrapbookers who don’t have time to create their own pages. The clients need only insert their pictures on the pages. It currently sells a child’s scrapbook with pre-made pages for $53. Production costs are $23 variable and $13 fixed. The company is considering creating scrapbook kits instead to save labour costs. They are expecting to sell these kits for $45 each and save $11 in variable costs.

Prepare an incremental analysis. (If an amount reduces the net income then enter with a negative sign preceding the number e.g. -45,000 or parenthesis, e.g. (45,000).)

Options below (drop down)

		Pre-made pages		Kits		Incremental revenue and costs
Fixed costs per unit / Net income (loss) per unit / Purchase price per unit/ Direct materials per unit/ Revenue per unit/ Variable costs per unit		$		$		$
Fixed costs per unit / Net income (loss) per unit / Purchase price per unit/ Direct materials per unit/ Revenue per unit/ Variable costs per unit
Fixed costs per unit / Net income (loss) per unit / Purchase price per unit/ Direct materials per unit/ Revenue per unit/ Variable costs per unit
Fixed costs per unit / Net income (loss) per unit / Purchase price per unit/ Direct materials per unit/ Revenue per unit/ Variable costs per unit		$		$		$

Should the company begin to sell kits or continue to sell pre-made scrapbooks?

Yes or no?

Answer 1

Solution:

Particulars	Premade pages	Kits	Incremental revenue and Costs
Selling price per unit	$53.00	$45.00	-$8.00
Variable cost per unit	$23.00	$12.00	-$11.00
Fixed cost per unit	$13.00	$13.00	$0.00
Net income (loss) per unit	$17.00	$20.00	$3.00

As net income per unit is increasing, company should begin selling kits.