Question

e7.9

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 $ 8 and sells for $ 22. 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 $ 26 per hour.) The Stage 2 kit sells for $ 36.

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

Should Anna's carry the basic introductory kit with undyed and uncut reeds or the Stage 2 kit with reeds already dyed and cut?

Anna should carry the

Answer 1

		Sell	Process	Net Income
		Basic Kit	Further	Increase (Decrease)
Sales per unit		22	36	14
Cost per unit:
Direct material		8	8	0
Direct labor			13	-13
Total		8	21	-13
Net income per unit		14	15	1
Kits must be processed further