the basic introductory kit includes undyed,uncut reeds (with dye included) for w
ID: 2349573 • Letter: T
Question
the basic introductory kit includes undyed,uncut reeds (with dye included) for weaving one basket. The basic package costs rachael $14 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 dye the basket. rache 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 $18 per hour. bc she is more efficient at cutting and dying reeds than her average customer, rachael is able to make two kits of the dyed reeds, in one hour, from one kit of undyed reeds. the stage 2 kits sells for $35.determine whether rachaels basketweaving shop should carry the basic introductory kit with undyed and uncut reeds or the stage 2 kit with reeds already dyed and cut. prepare an incremental analysis to support your answer.
Explanation / Answer
Incremental analysis for one kit:
undyed
dyed
Increase/(decrease) in net income
revenue
30
35
5
cost
14
16
-2
net income
16
19
3
The cost for the dyed kit is the cost of the undyed kit plus one hour of her time divided by two, since two dyed kits can be made with one hour and one undyed kit. (14+18)/2 = 16
She should carry the stage 2 kits.
undyed
dyed
Increase/(decrease) in net income
revenue
30
35
5
cost
14
16
-2
net income
16
19
3
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