Exam 20: 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?

Kuhn Bicycle Company has been manufacturing its own seats for its bicycles. The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 60% of direct labor cost. The direct materials and direct labor cost per unit to make the bicycle seats are $8.00 and $9.00, respectively. Normal production is 50,000 bicycles per year. A supplier offers to make the bicycle seats at a price of $21 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $30,000 of fixed manufacturing overhead currently being charged to the bicycle seats will have to be absorbed by other products. Instructions (a) Prepare the incremental analysis for the decision to make or buy the bicycle seats. (b) Should Kuhn Bicycle Company buy the seats from the outside supplier? Justify your answer.

Milwaukee, Inc. has three divisions: Bud, Wise, and Er. The results of May, 2016 are presented below. All of the allocated costs will continue even if a division is discontinued. Milwaukee allocates indirect fixed costs based on the number of units to be sold. Since the Wise division has a net loss, Milwaukee feels that it should be discontinued. Milwaukee feels if the division is closed, that sales at the Bud division will increase by 12%, and that sales at the Er division will stay the same. Instructions (a) Prepare an analysis showing the effect of discontinuing the Wise division. (b) Should Milwaukee close the Wise division? Briefly indicate why or why not.

When deciding whether or not to replace old equipment with new equipment, the overriding consideration is the

Which of the following steps in the management decision-making process does not generally involve the managerial accountant?

Felter Company produced and sold 50,000 units of product and is operating at 70% of plant capacity. Unit information about its product is as follows: The company received a proposal from a foreign company to buy 10,000 units of Felter Company's product for $50 per unit. This is a one-time only order and acceptance of this proposal will not affect the company's regular sales. The president of Felter Company is reluctant to accept the proposal because he is concerned that the company will lose money on the special order. Instructions Prepare a schedule reflecting an incremental analysis of this proposal and indicate the effect the acceptance of this order might have on the company's income.

A company is considering eliminating a product line. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. If the product line is discontinued,

Nonfinancial information that management might evaluate in making a decision would not include

If a plant is operating at full capacity and receives a one-time opportunity to accept an order at a special price below its usual price, then

Use the following information for questions . Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected: If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. -The net advantage (disadvantage) of replacing the old equipment with the new equipment is

A segment has the following data: What will be the incremental effect on net income if this segment is eliminated, assuming the fixed expenses will be allocated to profitable segments?

Notson, Inc. produces several models of clocks. An outside supplier has offered to produce the commercial clocks for Notson for $420 each. Notson needs 1,200 clocks annually. Notson has provided the following unit costs for its commercial clocks: Instructions Prepare an incremental analysis which shows the effect of the make-or-buy decision.

Chapman Company manufactures widgets. Embree Company has approached Chapman with a proposal to sell the company widgets at a price of $125,000 for 100,000 units. Chapman 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: The manufacturing overhead consists of $24,000 of costs that will be eliminated if the components are no longer produced by Chapman. From Chapman's point of view, how much is the incremental cost or savings if the widgets are bought instead of made?

Parks Corporation currently manufactures 3,000 staplers annually for its main product. The costs per stapler are as follows: Gallup Company has contacted Parks with an offer to sell it 3,000 staplers for $18 each. $5 of the fixed overhead per unit is unavoidable. Instructions Prepare an incremental analysis for the make-or-buy decision.

In incremental analysis,

Which of the following would generally not affect a make-or-buy decision?

An incremental make-or-buy decision depends solely on which alternative is the lowest cost alternative.

Use the following information for questions. A company's unit costs based on 100,000 units are: 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 opportunity cost associated with this order is

A decision whether to sell a product now or to process it further, depends on whether the incremental _____________ from processing further are greater than the incremental processing ______________.