Riverview Lumber Company incurs variable costs of $25.00 per unit in producing its standard deck chair, which it sells for $60.00 per unit. Alternatively, Riverview can produce and sell deluxe model deck chairs at a price of $74.00 per unit. Deluxe model variable costs are $36.00 per unit. If Riverview decides to produce deluxe model deck chairs, the company will have to lease additional equipment at a cost of $25,000 per month. Riverview’s existing fixed costs are $138,000 per month.

Riverview’s standard model deck chair sales are 6,000 units per month. Management estimates that sales volume of deluxe model deck chairs would be 6,000 units per month. Riverview should: (pick best answer).

switch to deluxe model deck chairs because contribution margin is increased by $18,000.

switch to deluxe model deck chairs because income is increased by $18,000.

produce either standard or deluxe model deck chairs because its income is the same regardless.

continue to produce standard deck chairs because income is decreased by $7,000 if it produces deluxe model deck chairs.

switch to deluxe model deck chairs because the change would lower the company’s breakeven point.

Answer rating: 100% (QA)

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