Exam 19: Incremental Analysis

All of the following are relevant to the sell or process further decision except

Use the following information for questions A company's unit costs based on 100,000 units are: Variable costs \ 75 Fixed costs 30 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 incremental profit (loss) from accepting the order would be

Martin Company incurred the following costs for 70,000 units: Variable costs $\quad \$ 420,000$ Fixed costs $\quad 392,000$ Martin has received a special order from a foreign company for 3,000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $6,300 for shipping. If Martin wants to earn $6,000 on the order, what should the unit price be?

In incremental analysis,

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?

All of the following are relevant in deciding whether to eliminate an unprofitable segment except the segment's

From a quantitative standpoint, a segment should be eliminated if its contribution margin is less than the fixed costs that can be eliminated.

Internal reports that review the actual impact of decisions are prepared by

Crigui Music produces 60,000 CDs on which to record music. The CDs have the following costs: Direct Materials \ 13,000 Direct Labor 15,000 Variable Overhead 3,000 Fixed Overhead 7,000 None of Crigui's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $4,000 if the CDs were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the CDs, what is the maximum external price that Crigui would be willing to accept to acquire the 60,000 units externally?

Fornelli, Inc. can produce 100 units of a component part with the following costs: Direct Materials \ 15,000 Direct Labor 6,500 Variable Overhead 16,000 Fixed Overhead 11,000 If Fornelli, Inc. can purchase the units externally for $40,000, by what amount will its total costs change?

If an incremental make or buy analysis indicates that it is cheaper to buy rather than make an item, management should always make the decision to choose the lowest cost alternative.

The decision rule on whether to sell or process further

Corn Crunchers has three product lines. Its only unprofitable line is Corn Nuts, the results of which appear below for 2017: 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?

Financial data are developed for a course of action under an incremental basis and then compared to data developed under a differential basis before a decision is made.

Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: Direct Materials \ 120,000 Direct Labor 25,000 Variable Overhead 45,000 Fixed Overhead 30,000 If Tex's Manufacturing Company can purchase the component externally for $190,000 and only $5,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

Which statement is true concerning the decision rule on whether to make or buy?

An opportunity cost is the potential benefit obtained by using resources in an alternative course 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?

When will the elimination of a product line have no effect on the company's overall profit?

The potential effects of the decision to eliminate a line of business on existing employees and the community are