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maw [93]
3 years ago
5

Anna Garden recently opened her own basketweaving studio. She sells finished baskets in addition to selling the raw materials ne

eded 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 $16 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 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 $18 per hour.) The Stage 2 kit sells for $36.
Prepare an incremental analysis for Anna's basket weaving studio.
Business
1 answer:
aleksklad [387]3 years ago
3 0

Answer:              

                                   Stage 1 kit         Stage 2 kit         Differential amount

Selling price                     $30                  $36                      $6

Materials cost                  ($16)                 ($16)                     $0

per unit

Additional labor                $0              $18/2 = ($9)             ($9)

cost per unit

Contribution margin        $14                    $11                      ($3)

per unit

Anna will lose $3 for every Stage 2 kit that she sells. Only if he is able to sell a much higher quantity of Stage 2 kits would it be worth it, but under current conditions Anna should focus on selling Stage 1 kits.

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