Mary Smith recently opened her own basket-weaving studio. She sells finished baskets in addition to the raw materials needed by customers to weave baskets of their own. Mary has put together a variety of raw material kits, with each kit including materials at various stages of completion. Unfortunately, because of space limitations, Mary is unable to carry all the varieties of kits she 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 Mary $11 and sells for $26. The second kit, called Stage 2, includes cut reeds that have already been dyed. With this kit, the customer only has to soak the reeds and weave the basket. Mary is able to produce the second kit by using the basic materials included in the first kit and adding one-half hour of her own time, which she values at $16 per hour. The kit of dyed and cut reeds sells for $33. Prepare an incremental analysis. (If an amount reduces the net income then enter with a negative sign preceding the number eg.-15,000 or parenthesis, e.g. (15,000).) Sell Basic Kit Per unit selling price $ Costs: Materials Labour Process Further Stage 2 Kit 26 $ 11 33 $ 11 0 8 Net Income Increase (Decrease) 7 15 20 5 Total costs I $ 15 $ 13 $ 1 Incremental revenue Determine whether Mary's basket-weaving shop should carry the basic introductory kit with undyed and uncut reeds or the Stage 2 it with reeds already dyed and cut. Mary's basket-weaving studio く should not carry the Stage 2 kits.
Mary Smith recently opened her own basket-weaving studio. She sells finished baskets in addition to the raw materials needed by customers to weave baskets of their own. Mary has put together a variety of raw material kits, with each kit including materials at various stages of completion. Unfortunately, because of space limitations, Mary is unable to carry all the varieties of kits she 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 Mary $11 and sells for $26. The second kit, called Stage 2, includes cut reeds that have already been dyed. With this kit, the customer only has to soak the reeds and weave the basket. Mary is able to produce the second kit by using the basic materials included in the first kit and adding one-half hour of her own time, which she values at $16 per hour. The kit of dyed and cut reeds sells for $33. Prepare an incremental analysis. (If an amount reduces the net income then enter with a negative sign preceding the number eg.-15,000 or parenthesis, e.g. (15,000).) Sell Basic Kit Per unit selling price $ Costs: Materials Labour Process Further Stage 2 Kit 26 $ 11 33 $ 11 0 8 Net Income Increase (Decrease) 7 15 20 5 Total costs I $ 15 $ 13 $ 1 Incremental revenue Determine whether Mary's basket-weaving shop should carry the basic introductory kit with undyed and uncut reeds or the Stage 2 it with reeds already dyed and cut. Mary's basket-weaving studio く should not carry the Stage 2 kits.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Mary Smith recently opened her own basket-weaving studio. She sells finished baskets in addition to the raw materials needed by
customers to weave baskets of their own. Mary has put together a variety of raw material kits, with each kit including materials at
various stages of completion. Unfortunately, because of space limitations, Mary is unable to carry all the varieties of kits she 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 Mary $11
and sells for $26. The second kit, called Stage 2, includes cut reeds that have already been dyed. With this kit, the customer only has to
soak the reeds and weave the basket. Mary is able to produce the second kit by using the basic materials included in the first kit and
adding one-half hour of her own time, which she values at $16 per hour. The kit of dyed and cut reeds sells for $33.
Prepare an incremental analysis. (If an amount reduces the net income then enter with a negative sign preceding the number e.g. -15,000 or
parenthesis, e.g. (15,000).)
Sell
Basic Kit
$
Per unit selling price
Costs:
Materials
Labour
Total costs
Process
Further
Stage 2 Kit
26
$
11
Net Income
Increase
(Decrease)
33
$
7
11
0
8
15
20
5
I
1
$
15
$
13
Incremental revenue
Determine whether Mary's basket-weaving shop should carry the basic introductory kit with undyed and uncut reeds or the Stage 2
kit with reeds already dyed and cut.
Mary's basket-weaving studio
should not carry the Stage 2 kits.
く
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