Incremental analysis

It costs a company $14 of variable costs and $6 of fixed costs to produce product A that sells for $30. A foreign buyer offers to purchase 3,000 units at $18 each. If the special offer is accepted and produced with unused capacity, net income will:

• Decrease $6,000

• Increase $6,000

• Increase $12,000

• Increase $9,000

In a make-or-buy decision, relevant costs are:

• manufacturing costs that will be saved

• the purchase price of the units

• opportunity costs

• All of them

In a decision to retain or replace equipment, the book value of the old equipment is a(n):

• Opportunity cost

• Incremental cost

• Sunk cost

• marginal cost

What is the contribution margin?

• Total Revenue – Total Variable costs

• Total Revenue – Total Fixed Costs

• Total Revenue – Cost of Finished Goods

When making a decision, which of the following should be considered?

• Opportunity Cost

• Relevant Costs

• Purchase price

• All of them

In a decision to Make or Buy or replace equipment, the additional income that may be earned because of the idle facilities, should be considered in…..:

• The Make (manufacture) column as an income

• The Make (manufacture) column as a cost

• The buy column as an income

• The Buy column as a cost

Assume a company incurs $100,000 for total variable costs and $150,000 for total fixed costs to produce 10,000 units. What would the total cost be to produce 12,000 units?

• $270,000

• $300,000

• $250,000

• $280,000

Which costs are only Fixed?

• rent

• commissions

• materials

• Purchase price per unit

Jobart Company is currently operating at full capacity. It is considering buying a part from an outside supplier rather than making it in-house. If Jobart purchases the part, it can use the released productive capacity to generate additional income of $30,000 from producing a different product. When conducting incremental analysis in this make-or-buy decision, the company should:

• Ignore the $30,000

• Add $30,000 to other costs in the Made Column

• Add $30,000 to other costs in the buy Column

• Reduce $30,000 in taxes

Assume a company incurs $150,000 for total variable costs and $300,000 for total fixed costs to produce 10,000 units. What would the total cost be to produce 12,000 units?

• $270,000

• $300,000

• $330,000

• $480,000