AFM 191 - Chp. 7.1 - Cost-volume-profit analysis

Question 1

define incremental analysis

Answer 1

a tool that only considers items that change when a deicion is made

Question 2

what’s the decision rule to make these operating decision?

Answer 2

proceed if: operating income increases
do not proceed it: operating income decreases

Question 3

what are the 2 approaches to finding if there should be a change in fixed expense, variable expense, sales price, sales volume?

Answer 3

1. contribution margin approach
2. incremental analysis approach

Question 4

how to do the contribution margin approach

Answer 4

prepare a contribution margin and compare the operating income

Question 5

how to do the incremental analysis approach

Answer 5

only consider the items that change (e.g. contribution margin, fixed expenses, variable expenses)