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The Cabinet Shoppe is considering the addition of a new line of kitchen cabinets to its current product lines. Expected cost and revenue data for
The Cabinet Shoppe is considering the addition of a new line of kitchen cabinets to its current product lines. Expected cost and revenue data for the new cabinets are as follows:
Annual sales | 5,000 units |
Selling price per unit | 180 |
Variable costs per unit: | |
Production | 120 |
Selling | 15 |
Avoidable fixed costs per year: | |
Production | 40,000 |
Selling | 60,000 |
Allocated common fixed costs per year | 45,000 |
If the new cabinets are added, it is expected that the contribution margin of other product lines at the cabinet shop will drop by 20,000 per year. If new cabinet product line is added next year, the increase in net operating income resulting from this decision would be:
80,000.
225,000.
125,000.
105,000.
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