Exam 20: Incremental Analysis

Ruth Company produces 1,000 units of a necessary component with the following costs: None of Ruth Company's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $8,000 if the components were acquired 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 be willing to accept to acquire the 1,000 units externally?

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

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

Incremental analysis is most useful

Incremental analysis would not be appropriate for

Opportunity cost must be considered in decisions involving

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. -What is the net cost of the new equipment?

Book value of old equipment is considered to be a

In a make-or-buy decision, which costs can be considered relevant?

The decision rule on whether to sell or process further

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: -Which products should be processed further?

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.

Instructions Prepare an analysis showing whether the old machine should be retained or replaced.

The focus of a sell or process further decision is

A decision whether to continue to make a product or buy it externally depends on the external price and the amount of variable and fixed costs that can be eliminated assuming no alternative uses of resources.

Each of the following is a disadvantage of buying rather than making a component of a company's product except that

Which of the following is not relevant information in a decision whether old equipment presently being used should be replaced by new equipment?

Match the items below by entering the appropriate code letter in the space provided. A. Incremental analysis B. Opportunity cost C. Sunk cost ____ 1. A cost that cannot be changed by any present or future decision. ____ 2. The process of identifying the financial data that change under alternative courses of action. ____ 3. The potential benefit that may be lost from following an alternative course of action.

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

A cost that cannot be changed by any present or future decision is a(n)