Answered: 4,000 spindles of yarn are produced.…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 54P

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4,000 spindles of yarn are produced. The spindles of yarn can then be sold directly to stores or
they can be used by Austin Wool Products to make afghans. Each spindle of yarn sells for $12;
variable costs are $8 to make a spindle of yarn, and fixed costs to make 4,000 spindles of yarn
total $8,000.

The yarn can also be used to make afghans. Each afghan sells for $32 and requires one and a
quarter (1.25) spindles of yarn. The additional costs incurred to make afghans from yarn include
$9 per afghan in variable costs, and $20,000 in additional fixed costs.

Required:
b. What is the lowest selling price Austin should be willing to accept for one afghan as long
as they can sell spindles of yarn to the outside market for $12 each?

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