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:

Job Order Costing

An accounting methodology used to track costs and revenues for individual jobs or orders, making it possible to report profitability per job.

Cost Accounting System

A method of accounting that tracks, records, and analyzes costs associated with the production of goods and services.

Raw Materials

Raw materials are the basic, unprocessed inputs used in the manufacturing of products or goods, essential to production processes.

Direct Labor Costs

Expenses directly associated with the production of goods or services, including wages of employees directly producing a product.