Question

Anna Garden recently opened her own basketweaving studio. She sells finished baskets in addition to selling the raw materials needed by customers to weave baskets of their own. Unfortunately, owing to space limitations, Anna is unable to carry all varieties of kits originally assembled and must choose between two basic packages.

The Basic Kit includes undyed, uncut reeds (with dye included) for weaving one basket. This basic package costs Anna $16 and sells for $30. 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. Anna produces the Stage 2 kit by using the materials included in the Basic Kit. Because she is more efficient at cutting and dying reeds than her average customer, Anna is able to produce two Stage 2 kits in one hour from one Basic Kit. (She values her time at $24 per hour.) The Stage 2 kit sells for $39.

(a1)

Partially correct answer icon

Your answer is partially correct.

Prepare an incremental analysis for the Anna’s basketweaving studio. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Sell (Basic Kit)		Process Further (Two Stage 2 Kits)		Net Income Increase (Decrease)
Sales per unit		$		$		$
Costs per unit
Direct materials		$		$		$
Direct labor
Total		$		$		$
Net income per unit		$		$		$

Answer 1

	Sell (Basic Kit)	Process Further (Two Stage 2 Kits)	Net income increase(decrease)
Sales per unit	20	56	36
Costs per unit:
Direct materials	8	8	0
Direct labor	0	18	-18
Total	8	26	-18
Net Income per unit	12	30	18
Anna should carry the Stage two Kit
Note: Costs per unit can alternatively be written with negative sign