Accounting Unit 4 NOTES.docx

Accounting Unit 4 NOTES.docx - Incremental Decision...

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Incremental Decision Making [Capacity?] A decision in which you are deciding to do one more or one less thing. Change it from a state that we are already in. Relevant (“Avoidable”) o Fixed Cost will never be relevant to a special order decision Irrelevant Increasing Activity (fixed cost are not relevant) Decreasing Decision (fixed cost may/might be relevant) Special Order Sell-or-process further Make-or-drop Keep-or drop Capacity o Full Typically you cannot ignore fixed cost Usually you will always sell at full price and most special orders will be denied o Idle/Excess Typically you can ignore fixed costs Incremental Analysis o Increase in revenues ($200,000) o Increase in expenses/costs Increase in DM ($120,000) Increase in DL ($70,000) Increase in V-MOH ($30,000) Profit decrease by $20,000 Example: Incremental Analysis Special Conditions o Future Sales Includes networking o Willingness to pay full price o Capacity o
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