Exam 7: Incremental Analysis for Short-Term Decision Making

Managerial decision makers must often consider non-economic factors as well.For example,when considering whether to eliminate a product line,managerial accountants with an emphasis on sustainability should consider the employee job loss implications as well.This represents sustainability within a:

Underwood,Inc.manufactures two products.It currently has 2,000 hours of direct labor and 1,000 hours of machine time available per month.The table below lists the contribution margin,labor and machine time requirements,and demand for each product. What is the contribution margin per machine hour for Product B?

Castor Corp.produces three products,and is currently facing a labor shortage - only 3,000 hours are available this month.The selling price,costs,labor requirements,and demand of the three products are as follows: What is the total contribution margin if Castor Corp.prioritizes production according to its limited resources?

Davenport Inc.has two divisions,Howard and Jones.Following is the income statement for the past month: What would Davenport's profit margin be if the Jones division was dropped?

Olive Corp.currently makes 20,000 subcomponents a year in one of its factories.The unit costs to produce are: An outside supplier has offered to provide Olive Corp.with the 20,000 subcomponents at a $36 per unit price.Fixed overhead is not avoidable.What is the maximum price Olive Corp.should pay the outside supplier?

Restore Corp.produces three products,and is currently facing a labor shortage - only 3,000 hours are available this month.The selling price,costs,labor requirements,and demand of the three products are as follows: a.In what order should Restore prioritize production of the products? b.How many of each product should be sold during the labor shortage to maximize profit? c.What is the total contribution margin if Restore prioritizes production according to its limited resources?

Marcy has received a special order for 2,000 units of its product at a special price of $60.The product normally sells for $80 and has the following manufacturing costs: Assume that Marcy has sufficient capacity to fill the order without harming normal production and sales and all fixed overhead is unavoidable. a.If Marcy accepts the order,what effect will the order have on the company's short-term profit? b.What minimum price should Marcy charge to achieve a $20,000 incremental profit? c.Now assume Marcy is currently operating at full capacity and cannot fill the order without harming normal production and sales.If Marcy accepts the order,what effect will the order have on the company's short-term profit?

Which of the following is not relevant to a sell-or-process further decision?

Which of the following is irrelevant to the decision to eliminate an unprofitable segment?

Potter has received a special order for 10,000 units of its product at a special price of $24.The product normally sells for $32 and has the following manufacturing costs: Potter is currently operating at full capacity and cannot fill the order without harming normal production and sales.If Potter accepts the order,what effect will the order have on the company's short-term profit?

Be cautious of ________ expressed on a per-unit basis when weighing make-or-buy decisions.The total value (instead of the per unit value)is relevant to the decision.

An avoidable cost is one that has already been spent.

Bancroft currently manufactures a subcomponent that is used in its main product.A supplier has offered to supply all the subcomponents needed at a price of $240.Bancroft currently produces 20,000 subcomponents at the following manufacturing costs: a.If Bancroft has no alternative uses for the manufacturing capacity,what would be the profit impact of buying the subcomponents from the supplier? b.If Bancroft has no alternative uses for the manufacturing capacity,what would be the maximum price per unit they would be willing to pay the supplier? c.Now assume Bancroft would avoid $640,000 in equipment leases and salaries if the subcomponent were purchased from the supplier.Now what would be the profit impact of buying from the supplier?

The segment margin is the contribution margin of a particular segment.

The manager of Hampton,Inc.is trying to decide whether to make or buy a component of the product it sells.Which of the following costs and benefits is not relevant to the decision?

Hanson Corp.produces three products,and is currently facing a labor shortage - only 3,000 hours are available this month.The selling price,costs,labor requirements,and demand of the three products are as follows: a.In what order should Hanson prioritize production of the products? b.How many of each product should be sold during the labor shortage to maximize profit? c.What is the total contribution margin if Hanson prioritizes production according to its limited resources?

Which of the following is not a step in the managerial decision-making process?

Maple Inc.manufactures a product that costs $45 per unit plus $50,000 in fixed costs each month.Maple currently sells 5,000 of these units per month for $60 each.If Maple leased a machine for $30,000 a month,it could add features to the product that would allow it to increase the selling price.It would cost an additional $10 per unit to add these features.How much would Maple have to charge for the product with additional features to make it worthwhile to lease the machine?

Violet has received a special order for 100 units of its product.The product normally sells for $2,000 and has the following manufacturing costs: Assume that Violet has sufficient capacity to fill the order without harming normal production and sales.What minimum price should Violet charge to achieve a $25,000 incremental profit?

Spencer Inc.manufactures a product that costs $36 per unit plus $32,000 in fixed costs each month.Spencer currently sells 1,000 of these units per month for $80 each.If Spencer leased a machine for $8,000 a month,it could add features to the product that would allow it to sell for $120 each.It would cost an additional $12 per unit to add these features.How much would Spencer's profit be affected if it leased the machine and added features to its product?