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 $1.6 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:

	Unit Price	Unit Variable Cost	Direct Fixed Cost
Grade I	$3,400	$2,686	$95,000
Grade II	1,600	1,328	95,000

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.

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. $ Increase

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.

Grade I	units
Grade II	units