Exam 21: Incremental Analysis

The split-off point is the point at which joint products can be separated into two or more products.

Differential costs are those that are the same among alternatives.

Assume that the price offered by the foreign company is $43 per unit.Accepting the special order will cause JCN's operating income to:

It would be ________ for managers to make decisions based only on financial information.

Speedy Co.manufactures four products.Direct materials and direct labor are available in sufficient quantities,but machine capacity is limited to 3,000 hours.Cost and revenue data for the four products are given below: Of the four products,which is the most profitable for Speedy Co.?

Sunk costs are relevant costs when considering a special order.

Incremental analysis Information regarding current operations of the Farrell Corporation is given below: The sales manager estimates that a proposed addition to Farrell's factory will increase sales by a maximum of $750,000.The company's accountants have determined that the proposed addition will add $320,000 to fixed costs each year. (a)Explain why the existing $310,000 of fixed costs is a sunk cost while the $320,000 of fixed costs associated with the proposed addition is an out-of-pocket cost. (b)Calculate by how much the proposed addition will either increase or reduce operating income.

Which of the following would not be an important nonfinancial factor for a farming company to consider in making a decision about the application of fertilizer?

Robbins Co.has been producing a part for a camera they manufacture.The costs for this part are as follows: Robbins has an opportunity to purchase this part rather than manufacture it.To purchase the part will cost $3 a unit.If the part is purchased,fixed costs will be reduced by 20%. Should Robbins Co.make or buy this part? Show how you arrived at your decision.

Identifying information relevant to a particular business decision requires an understanding of both quantitative and qualitative considerations.

Even though costs,revenues,and other factors do not vary among possible courses of action,they may be relevant to a decision.

Products for which sales of one contribute to the sales of another are called:

Widmark Company originally made cell phones at a cost of $60,000 that have since become obsolete due to new technology.They can sell the phones to a dealer for scrap for $11,500 or put more work into them to bring them up-to-date.To re-do the phones would cost $13,000 and they then could be sold for $20,000. (A. )Should the company scrap them or rework them (show calculations) (B. )If the original cost had been $50,000 and the company could now sell the phones for $25,000 what should Heston do?

The net change in operating income resulting from a decision to manufacture product A2 is:

Make-or-buy decision Currier,Inc. ,manufactures and distributes a large number of products.The costs per unit for one product,a pole,are as follows: Currier recently decided to buy the pole from another manufacturer for $32 per unit because the unit cost was less than its unit cost of $34.Solely on the basis of the cost data given,evaluate this decision.

Accepting a special order is profitable whenever the revenue from the special order exceeds:

Assume that Allen Distributors offers to purchase the additional 5,000 saws at a price of $47 per unit.If Burns accepts this price,Burns' monthly gross profit on sales of power saws will:

Sunk costs:

The Magic Microbrewery has a limited amount of vat capacity available in which it can ferment beer.In deciding which beers to brew,Magic management should consider:

By choosing to go into business for himself,Jim Lazar foregoes the possibility of getting a highly paid job with a large company.This is called a(n):