Exam 7: Incremental Analysis

Opportunity cost is usually

A company has a process that results in 24,000 pounds of Product A that can be sold for $8 per pound. An alternative would be to process Product A further at a cost of $160,000 and then sell it for $14 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action?

Accountants are mainly involved in developing nonfinancial information for management's consideration in choosing among alternatives.

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

Billings Company has the following costs when producing 100,000 units: Variable costs \ 600,000 Fixed costs 900,000 An outside supplier has offered to make the item at $4.50 a unit. If the decision is made to purchase the item outside, current production facilities could be leased to another company for $165,000. The net increase (decrease) in the net income of accepting the supplier's offer is

Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows: $\begin{array}{lrrrr}&\text { Wood } &\text {Aluminum } &\text {Hard Rubber } &\text { Total }\\\text { Sales }&\$500,000&\$200,000&\$65,000&\$765,000\\\text { Variable expenses }&325,000&140,000&58,000&523,000\\\text { Contribution margin } & 175,000 & 60,000 & 7,000 & 242,000 \\\text { Fixed expenses } & 75,000 &35,000 & 22,000 & 132,000\\\text { Net income (loss) } & \$ 100,000 & \$ 25,000 & \$(15,000) & \$ 110,000\end{array}$ Assume none of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped?

A company is considering replacing old equipment with new equipment. Which of the following is a relevant cost for incremental analysis?

Use the following information for questions A company's unit costs based on 100,000 units are: Variable costs \7 5 Fixed costs 30 The normal unit sales price per unit is $165. A special order from a foreign company has been received for 5,000 units at $135 a unit. In order to fulfill the order, 3,000 units of regular sales would have to be foregone. -The incremental profit (loss) from accepting the order would be

Baden Company manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:

In a decision to retain or replace old equipment, the salvage value of the old equipment is relevant in incremental analysis.

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

Use the following information for questions Ortiz Co. produces 5,000 units of part A12E. The following costs were incurred for that level of production: Direct materials \ 55,000 Direct labor 160,000 Variable overhead 75,000 Fixed overhead 175,000 If Ortiz buys the part from an outside supplier, $40,000 of the fixed overhead is avoidable. -If the outside supplier offers a unit price of $68, net income will increase (decrease) by

If an unprofitable segment is eliminated

Which of the following terms are synonymous?

All of the following are relevant to the sell or process further decision except

Which decision will involve no incremental revenues?

The costs incurred prior to the split-off point are referred to as

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

Which of the following is not a qualitative factor to be considered in a make-or-buy decision?

During 2019, it cost Westa, Inc. $18 per unit to produce part T5. During 2020, it has increased to $21 per unit. In 2017, Southside Company has offered to provide Part T5 for $16 per unit to Westa. As it pertains to the make-or-buy decision, which statement is true?