7 - Incremental Analysis

Question 1

accept - reject special order

Answer 1

ACCEPT THE SALE

Sales
(VC)
=CM
(OP)
=profit

*accept if profit is positive

Question 2

maximum capacity schedule

Answer 2

maximum capacity
(current sales)
=available capacity
(special order)
=units given up/excess

**if a problem says full capacity!! no available capacity
**if a problem says at available capacity = available capacity is 0

Question 2

Make or buy (cost statement)

Answer 2

MAKE BUY
(DM)
(DL)
(VOH)
(FOH)
(PP)
(OP)
=total costs

only negative number in cost statement
**only put avoidable FOH ( so FOH that differs between both options)
**Make has no PP
**Buy has no DM, DL, VOH since it’s not manufacturing the product

Question 3

OP (CM you’re giving up on)

Answer 3

CMu * units given up

Question 4

Make or buy (revenue statement)

Answer 4

MAKE BUY

Sales
(DM)
(DL)
(VOH)
(FOH)
(PP)
(OP)
=total profit

Question 5

Keep or replace (Cost statement)

Answer 5

KEEP REPLACE

annual costs of the machine
*useful life
=total operating costs
PP
(SV)
=total costs

no SV or PP in keep since you’re keeping the machine
**Replace can have multiple SV if for example youre given the SV of the old and new machine
**book value of the old equipment and the price you paid for back then are sunk costs they do not matter
- market value of the equipment (what it would sell for today) is your SV

Question 6

Keep or replace (Revenue statement)

Answer 6

KEEP REPLACE

sales
-annual costs of the machine
=yearly profit
*useful life
=total profit
(PP)
SV
‘=total profit

Question 7

Eliminate unprofitable segment

Question 8

Sell or process further

Answer 8

Sales
-APC
=Profit

Question 9

limited ressources

Answer 9

Step 1) find the CM/hrs for every product
PRODUCT A B C

SPu
(VCu)
=CMu
/ hrs per product
= CM/hrs

Step 2) rank them from lowest CM/hrs to highest
Step 3) Hours and Money grids