Exam 7: Incremental Analysis

It costs Lannon Fields $28 of variable costs and $12 of allocated fixed costs to produce an industrial trash can that sells for $60. A buyer in Mexico offers to purchase 3,000 units at $36 each. Lannon Fields has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

In a make-or-buy decision, opportunity costs are

Ruth Company produces 1,000 units of a necessary component with the following costs: Direct Materials \ 34,000 Direct Labor 15,000 Variable Overhead 9,000 Fixed Overhead 10,000 Ruth Company could avoid $6,000 in fixed overhead costs if it acquires the components externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Ruth Company would accept to acquire the 1,000 units externally?

Argus Company anticipates that other sales will be affected by the acceptance of a special order. What should the company do?

Use the following information for questions Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: Sales Value Additional Sales Value after Product at Split-off Variable Costs FurtherProcessing Green lumber \ 159,600 \ 24,000 \ 178,000 Rough lumber 124,000 28,200 173,600 Sawdust 102,000 19,600 130,000 -The additional profit that would result from processing rough lumber further is

Mallory Company manufactures widgets. Bowden Company has approached Mallory with a proposal to sell the company widgets at a price of $82,000 for 100,000 units. Mallory is currently making these components in its own factory. The following costs are associated with this part of the process when 100,000 units are produced: Direct material \ 31,000 Direct labor 29,000 Manufacturing overhead 40,000 Total \ 100,000 The manufacturing overhead consists of $16,000 of costs that will be eliminated if the components are no longer produced by Mallory. From Mallory's point of view, how much is the incremental cost or savings if the widgets are bought instead of made?

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

Which is the first step in the management decision-making process?

Bell's Shop can make 1,000 units of a necessary component with the following costs: Direct Materials \ 24,000 Direct Labor 6,000 Variable Overhead 3,000 Fixed Overhead ? The company can purchase the 1,000 units externally for $39,000. The unavoidable fixed costs are $2,000 if the units are purchased externally. An analysis shows that at this external price, the company is indifferent between making or buying the part. What are the fixed overhead costs of making the component?

The cash disposal value of old equipment is considered to be a (an)

Marcus Company gathered the following data about the three products that it produces: Sales Present Estimated Additional Estimated Product further Sales Value Processing Costs if Processed A \ 12,000 \ 8,000 \ 21,000 B 14,000 5,000 18,000 11,000 3,000 16,000 Which of the products should not be processed further?

Corn Crunchers has three product lines. Its only unprofitable line is Corn Nuts, the results of which appear below for 2019: Sales \ 1,400,000 Variable expenses 920,000 Fixed expenses 600,000 Net loss \ (120,000) If this product line is eliminated, 30% of the fixed expenses can be eliminated. How much are the relevant costs in the decision to eliminate this product line?

In incremental analysis,

In a retain or replace equipment decision, trade-in allowance available on old equipment

Moreland Clean Company spent $8,000 to produce Product 89, which can be sold as is for $10,000, or processed further incurring additional costs of $3,000 and then be sold for $14,000. Which amounts are relevant to the decision about Product 89?

Use the following information for questions Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: Sales Value Additional Sales Value after Product at Split-off Variable Costs FurtherProcessing Green lumber \ 159,600 \ 24,000 \ 178,000 Rough lumber 124,000 28,200 173,600 Sawdust 102,000 19,600 130,000 -What is the increase in profit if the appropriate products are processed further?

The process used to identify the financial data that change under alternative courses of action is called allocation of limited resources.

A segment has the following data: Sales \ 700,000 Variable expenses 300,000 Fixed expenses 550,000 What will be the incremental effect on net income if this segment is eliminated, assuming the fixed expenses will be allocated to profitable segments?

An important step in management's decision-making process is to determine and evaluate possible courses of action.

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price \ 300,000 \ 600,000 Accumulated Depreciation 90,000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs \ 240,000 \ 180,600 If the old machine is replaced, it can be sold for $24,000. Which of the following amounts is a sunk cost?