Exercise 20-9 (Part Level Submission) Anna Garden recently opened her own basketweaving studio. She sells finished...

Exercise 20-9 (Part Level Submission)

Anna Garden 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. Anna has put together a variety of raw material kits, each including materials at various stages of completion. 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 introductory kit includes undyed, uncut reeds (with dye included) for weaving one basket. This basic package costs Anna $18 and sells for $32. 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 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, which she values at $28 per hour. Because she is more efficient at cutting and dying reeds than her average customer, Anna is able to make two kits of the dyed reeds, in one hour, from one kit of undyed reeds. The Stage 2 kit sells for $41.

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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).)

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

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Homework Answers

Answer #1


Particulars Sell (Basic kit) Process further (Stage 2 kit) Net income increase / (Decrease)
Sales per unit 32 41 9
Cost per unit:
Direct materials (a) 18 9 9
Direct labour(b) - 14 (14)
Total cost (a+b) 18 23 (5)
Net income per unit 14 18 4

Anna Garden should processthe kits further as it results in incremental revenue as shown above.

(1) Cost of Material in stage 2 has decreased as Anna can make 2 kits in stage 2 from thematerials for a basic kit. Therefore the kit shall now cost $9 instead of $18

(2) The total time taken to make two kits is one hour at $28 or $14 per Kit.

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