Exam 7: Incremental Analysis

Which of the following is a true statement about cost behaviors in incremental analysis? 1. Fixed costs will not change between alternatives. 2. Fixed costs may change between alternatives. 3. Variable costs will always change between alternatives.

Use the following information for questions Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: Direct materials \ 8,400 Direct labor 11,250 Variable overhead 12,600 Fixed overhead 16,200 An outside supplier has offered to sell Clemente the subcomponent for $2.85 a unit. -If Clemente could avoid $3,000 of fixed overhead by accepting the offer, net income would increase (decrease) by

The focus of a sell or process further decision is

All of the following are relevant in deciding whether to eliminate an unprofitable segment except the segment's

Which of the following is not involved in the sell or process further decision?

A special one-time order should never be accepted if the unit sales price is less than the unit variable cost.

When will the elimination of a product line have no effect on the company's overall profit?

Which of the following is relevant information in a decision whether old equipment presently being used should be replaced by new equipment?

Use the following information for questions Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: Direct materials \ 8,400 Direct labor 11,250 Variable overhead 12,600 Fixed overhead 16,200 An outside supplier has offered to sell Clemente the subcomponent for $2.85 a unit. -If Clemente accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3,600. The increase (decrease) in net income from accepting the offer would be

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 the special order, what will occur?

The point in the production process when joint products are readily identifiable is the

Crigui Music produces 60,000 CDs on which to record music. The CDs have the following costs:. Direct Materials \ 13,000 Direct Labor 15,000 Variable Overhead 3,000 Fixed Overhead 7,000 None of Crigui's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $4,000 if the CDs were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the CDs, what is the maximum external price that Crigui would be willing to accept to acquire the 60,000 units externally?

A company is deciding whether or not to replace some old equipment with new equipment. Which of the following is not considered in the incremental analysis?

If a company anticipates that other sales will be affected by the acceptance of a special order, then

Incremental analysis is most useful

Use the following information for questions Truckel, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows: Direct materials and direct labor \ 11 Variable overhead 5 Fixed overhead 8 Total \2 4 -Saran Company has contacted Truckel with an offer to sell it 5,000 of the wickets for $18 each. If Truckel makes the wickets, variable costs are $16 per unit. Fixed costs are $8 per unit; however, $5 per unit is unavoidable. Should Truckel make or buy the wickets?

If a company is operating at less than capacity, the incremental costs of a special order will likely include variable manufacturing costs, but not fixed costs.

Many of the decisions involving incremental analysis have qualitative features, but since they are not easily measured they should be ignored.

A revenue that differs between alternatives and makes a difference in decision-making is called a(n)

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 all of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped?