Exam 7: Incremental Analysis

Galley Industries can produce 500 units of a necessary component part with the following costs: If Galley Industries purchases the component externally, $3,000 of the fixed costs can be avoided.Below what external price for the 500 units would Galley choose to buy instead of make?

Halliburton Division has the following data: The fixed costs are not avoidable and must be allocated to profitable divisions if the segment is eliminated.What will be the incremental effect on net income if Halliburton Division is eliminated?

In deciding on the future status of an unprofitable segment, management should recognize that net income will increase by eliminating the unprofitable segment.

A company should eliminate any segment in which the contribution margin is less than the fixed costs that are unavoidable.

EKP purchased a raw material in bulk for $10,000.It then spent an additional $500 to package the product into smaller quantities which it can sell for $12,000.Recently, a situation has arisen in which EKP can add an additional ingredient to the individual packages and sell them for $14,000.The cost of adding the additional ingredient is $1,700.Which amounts are relevant to the decision?

A disadvantage of using an outside supplier is the associated loss of control over the production process.

Which statement is true concerning the decision rule on whether to make or buy?

Which one of the following is a true statement about incremental analysis?

If a company has limited machine hours available for production, it is generally more profitable to produce and sell the product with the highest contribution margin per machine hour.

PH Toy is unsure of whether to sell its product assembled or unassembled.The unit cost of the unassembled product is $30 and PH Toy Company would sell it for $65.The cost to assemble the product is estimated at $21 per unit and PH Toy Company believes the market would support a price of $85 on the assembled unit.What decision should PH Toy make?

Hari's Fish House can produce and sell only one of the following two products: The company has fryer capacity of 12,000 hours.How much will the contribution margin be if it produces only the most profitable product?

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

Use the following information for questions Hermantic, Inc.can produce 100 units of a component part with the following costs: -If Hermantic, Inc.purchases the units externally for $80,000, by what amount will its total costs change?

In a sell or process further decision, management should process further as long as the incremental revenues from additional processing are greater than the incremental costs.

Which of the following describes one aspect of incremental analysis?

The cost to produce Part A was $5 per unit in 2011.During 2012, it has increased to $8 per unit.In 2012, Supplier Company has offered to supply Part A for $6 per unit.For the make-or-buy decision,

A company is within plant capacity.It is contemplating whether a special order should be accepted.The order will not impact regular sales.If the company accepts a special order, what will occur?

Ace Company sells office chairs with a selling price of $45 and a contribution margin per unit of $20.It takes 5 machine hours to produce one chair.How much is the contribution margin per unit of limited resource?

For which of the following is incremental analysis appropriate?

Decision-making involves reviewing the results of a decision once the decision has been made.