Artistic Woodcrafting Inc. began several years ago as a one-person, cabinet-making operation. Employees were added as the business expanded. Last year, sales volume totaled $850,000. Volume for the first five months of the current year totaled $600,000, and sales were expected to be $1.6 million for the entire year. Unfortunately, the cabinet business in the region where Artistic is located is highly competitive. More than 200 cabinet shops are all competing for the same business. Artistic currently offers two different quality grades of cabinets: Grade I and Grade II, with Grade I being the higher quality. The average unit selling prices, unit variable costs, and direct fixed costs are as follows: Unit Price Unit Variable Cost Direct Fixed Cost Grade I $3,400 $2,686 $95,000 Grade II 1,600 1,328 95,000
Common fixed costs (fixed costs not traceable to either cabinet) are $35,000. Currently, for every three Grade I cabinets sold, seven Grade II cabinets are sold.