The Cabinet Shoppe Is Considering the Addition of a New $\quad$

question 46

Multiple Choice

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. $\quad$$\quad$ 5,000 units
Selling price per unit. $\quad$$\quad$ £180
Variable costs per unit:
Production. $\quad$$\quad$ £120
Selling. $\quad$$\quad$ £15
Avoidable foed costs peryear:
Production. $\quad$$\quad$ £40,000
Selling. $\quad$$\quad$ £80,000
Allocated common fixed costs per year. $\quad$$\quad$ £45,000
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If the new cabinets are added, it is expected that the contribution margin of other product lines at the cabiet shop will drop by £20,000 per year. What is the lowest selling price per unit that could be charged for the new cabinets and still make it economically desirable to add the new product line

• A)£159.
• B)£164.
• C)£171.
• D)£151.

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Definitions:

Asset Turnover Ratio

A ratio measuring how effectively a business uses its assets to produce sales income.

Property, Plant, and Equipment

Tangible long-term assets owned by a business, used in the production or supply of goods and services, such as buildings, machinery, and vehicles.

Accumulated Depreciation

It represents the total amount of depreciation expense that has been recorded for an asset over its life.

Intangible Assets

Non-physical assets owned by a business, such as patents, trademarks, and copyrights.