Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Carol's Kreations just completed its best year, generating income of $39,000 from selling decadent wedding cakes and desserts. For a business that is only two
Carol's Kreations just completed its best year, generating income of $39,000 from selling decadent wedding cakes and desserts. For a business that is only two years old and run from Carol's own kitchen, this is quite an accomplishment. She has been asked to provide a special-event cake for one event per month at the local convention center, but at a reduced price of $400. While this is mostly fantastic news, Carol realizes that she is already working at maximum capacity. If she commits to these events, she will need to either find additional capacity or reduce her regular wedding cake sales. The following income statement shows Carol's results from last year. Carol's average selling price is $1,000 per cake; fixed-MOH costs are $67,400 and are included in COGS. All other product costs vary based on volume. Average variable operating expenses are $110 per cake; remaining operating expenses are fixed. After thinking about it further, she realizes she'll avoid the variable operating expenses on the special-event cakes. (a) To keep her existing sales volume and take on the new convention center events, Carol would need to hire additional employees who would "invade" her home while she and her family sleep. Hiring dependable night-shift workers would increase her variable product costs per unit by 20%. If she maintains her existing sales and takes on the new events under these circumstances, how much total operating income will she show for next year
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started