Exam 7: Incremental Analysis

In a decision concerning replacing old equipment with new equipment, the book value of the old equipment can be considered an opportunity cost.

In incremental analysis, total fixed costs will always remain constant under alternative courses of action.

Serene Dairy has 4 product lines: sour cream, ice cream, yogurt, and butter.The total costs of producing the milk base for the products is $53,000 which has been allocated based on litres of milk base used by each product.Results of July follow: How much are total joint costs of the products?

North Division has the following information: If this division is eliminated the fixed expenses will be allocated to the company's other divisions.What is the incremental effect on net income if the division is dropped?

Max Company has excess capacity.A customer proposes to buy 400 widgets at a special unit price even though the price is less than the unit variable cost to manufacture the item.Max should accept the special order if demand on other products is unaffected.

What is the nature of a sell or process further decision?

Shorebuck's Coffee can sell all the units it can produce of either latte or cappuccino but not both.Latte has a unit contribution margin of $45 and takes three machine hours to make and cappuccino has a unit contribution margin of $32 and takes two machine hours to make.There are 1,300 machine hours available to manufacture a product.What should Shorebuck's do?

The book value of old equipment is an opportunity cost.

Wishnell Toys can make 5,000 toy robots with the following costs: The company can purchase the 5,000 robots externally for $145,000.The avoidable fixed costs are $15,000 if the units are purchased externally.What is the cost savings if the company makes the robots?

Coggin Company gathered the following data about the three products that it produces: Which of the products should be processed further?

During 2011, it cost Westa, Inc.$12 per unit to produce Part T5.During 2012, it has increased to $14 per unit.In 2011, Southside Company has offered to provide Part T5 for $9 per unit to Westa.As it pertains to the make-or-buy decision, which statement is true?

Which one of the following is an alternative name for incremental analysis?

What is the key factor in performing incremental analysis if a company has limited resources?

Walton, Inc.is unsure of whether to sell its product assembled or unassembled.The unit cost of the unassembled product is $16, while the cost of assembling each unit is estimated at $17.Unassembled units can be sold for $55, while assembled units could be sold for $71 per unit.What decision should Walton make?

Truckel, Inc.currently manufactures a wicket as its main product.The costs per unit are as follows: The fixed overhead is an allocated common cost.How much is the relevant cost of the wicket?

Specik, Inc.is considering the following alternatives: Which of the following are relevant in choosing between the alternatives?

Which statement is true about relevant costs in incremental analysis?

Use the following information for questions Eminen Music produces 60,000 blank CDs on which to record music.The CDs have the following costs: -Eminem could avoid $4,000 in fixed overhead costs if it acquires the CDs externally.If cost minimization is the major consideration and the company would prefer to buy the 60,000 units externally, what is the maximum external price that Eminem would expect to pay for the units?

If an unprofitable product is eliminated, fixed expenses allocated to the eliminated segment will likely be eliminated.

Equipment which is not fully depreciated should always be replaced.