Cost$-$Volume$-$Profit with Multiple Products, Sales Mix Changes, Changes in Fixed and Variable Costs

Artistic Woodcrafting Inc. began several years ago as a one$-$person, cabinet$-$making operation. Employees were added as the business expanded. Last year, sales volume totaled $$850,000.$ Volume for the first five months of the current year totaled $$600,000,$ and sales were expected to be $$1\mathrm{.}6$ million for the entire year. Unfortunately, the cabinet business in the region where Artistic is located is highly competitive. More than $200$ cabinet shops are all competing for the same business.

Artistic currently offers two different quality grades of cabinets: Grade I and Grade II$,$ with Grade I being the higher quality. The average unit selling prices, unit variable costs, and direct fixed costs are as follows:

Line Item Description Unit Price Unit Variable Cost Direct Fixed Cost

Grade I $$3,400$ $$2,686$ $$95,000$

Grade II $1,6001,32895,000$

Common fixed costs $($fixed costs not traceable to either cabinet$)$ are $$35,000.$ Currently, for every three Grade I cabinets sold, seven Grade II cabinets are sold.

Required:

Note: Round your answers to the nearest whole number.

$1.$ Calculate the number of Grade I and Grade II cabinets that are expected to be sold during the current year.

Line Item Description Answer

Grade I fill in the blank $1$ units

Grade II fill in the blank $2$ units

$2.$ Calculate the number of Grade I and Grade II cabinets that must be sold for Artistic to break even.

Line Item Description Answer

Grade I fill in the blank $3$ units

Grade II fill in the blank $4$ units

$3.$ Artistic can buy computer$-$controlled machines that will make doors, drawers, and frames. If the machines are purchased, the variable costs for each type of cabinet will decrease by $9\%,$ but common fixed cost will increase by $$44,000.$

Compute the effect on operating income.

fill in the blank $1$ of $1$$

Calculate the new break$-$even point. Assume the machines are purchased at the beginning of the sixth month. Fixed costs for the company are incurred uniformly throughout the year.

Line Item Description Answer

Grade I fill in the blank $7$ units

Grade II fill in the blank $8$ units

$4.$ Refer to the original data. Artistic is considering adding a retail outlet. This will increase common fixed cost by $$70,000$ per year. As a result of adding the retail outlet, the additional publicity and emphasis on quality will allow the firm to change the sales mix to $1$:$1.$ The retail outlet is also expected to increase sales by $30\%.$ Assume that the outlet is opened at the beginning of the sixth month.

Calculate the effect on the company's expected profits for the current year.

fill in the blank $1$ of $1$$

Calculate the new break$-$even point. Assume that fixed costs are incurred uniformly throughout the year.

Grade I fill in the blank $11$ units

Grade II fill in the blank $12$ units