Chapter 21 – Incremental Analysis
Financial and Managerial Accounting, 17/e 21-7
CHAPTER 21 NAME #
10-MINUTE QUIZ D SECTION
A job of 1,000 VCR’s manufactured by K Corp. contains defective parts. The cost
incurred in manufacturing these defective units is $140,000. K Corp. can sell these
units as scrap materials for $45 per unit or repair all 1,000 units at a total cost of
$70,000. If the units are repaired, they can be sold at the normal price of $200 per unit.
1 What will be the total amount of the loss incurred by K Corp. on the sale of these units
if they are sold for scrap at $45 per unit?
$____________ loss
2 What will be the average per-unit manufacturing cost of the VCR, including repair
costs, assuming that K Corp. does the repairs? $____________ per unit
3 What will be the total amount of the loss incurred by K Corp. on the sale of these units
if they are repaired and sold for $200 per unit? $____________ loss
4 What is the relevant cost to K Corp. in deciding whether or not to repair the units?
(State this cost as a total amount for all 1,000 units.) $____________
5 Should K Corp.(1) sell the units for scrap or (2) repair the units? Underline the most
profitable action, and indicate the amount of the net financial benefit of this action to
the company. $____________
Chapter 21 – Incremental Analysis
SOLUTIONS TO CHAPTER 21 10-MINUTE QUIZZES
QUIZ A QUIZ B
Learning Objective: 2, 3, 4 Learning Objective: 2, 3
QUIZ C
% of total sales
x
Joint costs
=
Allocation
a MB sales ………………….
$85,000
77%
x
$70,000
=
$53,900
b EB sales…………………..
25,000
23%
x
$70,000
=
$16,100
Chapter 21 – Incremental Analysis
Financial and Managerial Accounting, 17/e 21-9
QUIZ D
1
($45 x 1,000 units) – $140,000 = $ 95,000 loss
2
Chapter 21 – Incremental Analysis
Financial and Managerial Accounting, 17/e 21-10
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Assignment Guide to Chapter 21
Brief Exercises
Exercises
Problems
Cases
Net
1 – 10
1 – 15
1
2
3
4
5
6
7
8
1
2
4
3
Time estimate (in minutes)
< 15
< 15
40
40
25
30
25
40
30
40
35
15
20
20
Difficulty rating
E
E
M
S
M
M
M
M
M
M
M
M
M
E
Learning Objectives:
1, 3, 8
1, 2, 3, 4, 5,
6, 7, 8, 9, 10,
11, 12, 13,
14, 15
√
√
√
√
√
√
√
√
√
√
1. Explain what makes information
relevant to a particular business
decision.
2. Discuss the relevance of opportunity
costs, sunk costs, and out-of-pocket
costs in making business decisions.
2, 3, 4, 5, 6, 9,
10
1, 2, 3, 4, 5,
6, 7, 8, 9, 10,
11, 12, 13,
14, 15
√
√
√
√
√
√
√
√
√
√
3. Use incremental analysis in common
business decisions.
1, 2, 8, 9, 10
1, 3, 4, 5, 6,
7, 8, 9, 10,
11, 12, 13,
14, 15
√
√
√
√
√
√
√
√
√
√
√
4. Discuss how contribution margin
can b maximized when one factor
limits productive capacity.
2, 3, 4, 7, 8, 9,
10
1, 4, 5, 6, 7,
8, 9, 10, 11,
14
√
√
√
√
√
√
√
5. Identify nonfinancial considerations
and creatively search for better
courses of action.
4
1, 14
√
√
√
√
√
√