Differential Analysis

Question 1

Contribution Margin

Answer 1

Sales - Variable Expenses

Variable Expenses:

• Direct Materials Costs
• Direct Labor Costs
• Variable MOH Costs
• Variable Selling & Administrative Costs

Question 2

Make or Buy Decision

Answer 2

Total Cost - Unavoidable Cost = Production Cost

Purchasing Cost - Production Cost = Difference

(Difference * Total Units) - Any Additional Benefits = Benefit (Cost) of Purchasing

Question 3

Special Orders

Answer 3

Total Variable Costs - Total Fixed Costs = Incremental Costs

Incremental Revenues - Incremental Costs = Incremental Net Income

Question 4

Utilization of a Constrained Resources

Answer 4

Contribution Margin / Time Required = CM of the Constrained Resource

Contribution Margin per Unit * Additional Units Produced per Hour = Additional Contribution Margin per Hour

Question 5

Adding/Dropping Product Lines & Segments

Answer 5

Total Avoidable Costs - Contribution Margin = Net Gain (Loss) from Decision

Question 6

Sell or Process Further

Answer 6

Sale Value after Further Processing - Sale Value at the Split-off Point = Incremental Revenue from Further Processing

Incremental Revenue from Further Processing - Cost of Further Processing = Profit (Loss) from Further Processing