Question

Anna Garden recently opened her own basketweaving studio. She sells finished baskets in addition to selling the raw materials needed by customers to weave baskets of their own. Unfortunately, owing to space limitations, Anna is unable to carry all varieties of kits originally assembled and must choose between two basic packages.

The Basic Kit includes undyed, uncut reeds (with dye included) for weaving one basket. This basic package costs Anna $8 and sells for $22. The second kit, called Stage 2, includes cut reeds that have already been dyed. With this kit the customer need only soak the reeds and weave the basket. Anna produces the Stage 2 kit by using the materials included in the Basic Kit. Because she is more efficient at cutting and dying reeds than her average customer, Anna is able to produce two Stage 2 kits in one hour from one Basic Kit. (She values her time at $22 per hour.) The Stage 2 kit sells for $34.

Required:
Prepare an incremental analysis for Anna's basket weaving studio.

Answer 1

Answer and Explanation:

As per the data given in the question,

Net income per unit = sale  per unit - total cost

                       Sell of basic kit     Process stage 2 kit    Net income(inc./dec. )

Sales per unit              $22                                $34                              $12

Cost per unit  

Direct materials           $8                                  $4                                $4

Direct labor                   0                                   $11                               -$11

Total cost                     $8                                  $15                              -$7

Net income per unit(inc.)$14                           $19                               $5

Answer 2

Answer:

See the explanation below.

Explanation:

The incremental analysis will be as follows:

                                  Anna's basket weaving studio

                                          Incremental Analysis

                                  Sell        |   Process  |  Net Income ($)  

Details              Basic Kit ($)  |Further ($) | Increase(Decrease)

Sales per unit             22              34                      12  

Cost per unit:    

Direct material             8                 8                        0  

Direct labor                                     11                       (11)  

Total cost per unit        8                19                       (11)  

Net income per unit   14               15                       1