Anna Garden recently opened her own basketweaving studio. She sells finished bas

Question

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 14 and sells for $28. 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 $18 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 $33. (a1) 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 (Stage 2 Kit) Net Income Increase (Decrease) Sales per unit Costs per unit Direct materials Direct labor Total Net income per unit Click if you would like to Show Work for this question: Open Show Work Attempts: 0 of 1 used SAVE FOR LATER SUBMIT ANSWER (a2)

Explanation / Answer

Ans)

Anna garden should process the kits further as it results in incremental revenue as shown above.

Working notes:

(1) Cost of Material in stage 2 has decreased as Anna garden can make 2 kits in stage 2 from the materials for a basic kit. Therefore the kit shall now cost $7 instead of $14.

(2) The total time taken to make two kits is one hour at $18 or $9 per Kit.

Sell (Basic kit) process further (Stage 2 kit) Net income increase (Decrease) Sales per unit 28 33 5 Costs per unit Direct materials 14 7 7 Direct labour - 9 (9) Total 14 16 (2) Net income per unit 14 17 3

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