Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A firm called Traditional Disruption is considering adding a new line of clothes: the Rich Man's Wish line. The new line's revenue would $600,000, but

A firm called Traditional Disruption is considering adding a new line of clothes: the "Rich Man's Wish" line. The new line's revenue would $600,000, but its costs would be $700,000. After some study, the firm finds that $45,000 of the line's $700,000 in costs can be avoided by using machinery the firm already owns. The firm has two other related clothing lines. "Soft Edges" line: $2,500,000 in revenue. "Hard Rock" line: $950,000 in revenue. If the firm adds Rich Man's Wish, then revenue for Soft Edges would increase by 10% and revenue for Hard Rock would decrease by 20%. Based on relevant cost analysis, should Traditional Disruption add this new line or not add it?

a. The should not add the line because they are $5,000 LESS profitable if they add it.

b. They should add the line because they are $45,000 MORE profitable if they add it.

c. They should add the new line because they are $5,000 MORE profitable if they add it.

d. They should not add the line because they are $45,000 LESS profitable if they add it.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Complete Guide To Operational Auditing 1995 Supplement

Authors: Harry R. Reider

1st Edition

0471102547, 978-0471102540

More Books

Students also viewed these Accounting questions