Rachel Rey recently opened her own basketweaving studio. She sells finished baskets in addition to the raw materials needed by customers to weave baskets of their own. Rachel has put together a variety of raw material kits, each including materials at various stages of completion. Unfortunately, owing to space limitations, Rachel is unable to carry all varieties of kits originally assembled and must choose between two basic packages.
The basic introductory kit includes undyed, uncut reeds, with dye included, for weaving one basket. This basic package costs Rachel $14 and sells for $30. the second kit, called stage 2, includes cut reeds that have already been dyed. With this kit, the customer need only soaks the reeds and weave the basket. Rachel is able to produce the second kit by using the basic materials included in the first kit and adding one hour of her own time, which she values at $18 per hour. Because she is more efficient at cutting and doing reeds than her average customer, Rachel is able to make two kits of the dyed reeds, in one hour, from one kit of undyed reeds. Stage 2 sells for $35.
Should Rachel's basketweaving shop carry the basic introductory kit with undyed and uncut reeds or the Stage 2 kit with reeds already dyed and cut.
Please give an incremental analysis along with the answer.
Kit #1: $30 selling price - $14 variable costs = $16 profit per item
Kit #2 $35 selling price - $7 ...
The following posting helps with a problem involving incremental accounting analysis of a basket-weaving shop.