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Unformatted text preview: C ASE EXERC ISE 2. COST ANALYSIS. QUESTION 1. Calculate the incremental, or marginal, cost per chair to leisure products of accepting the order f rom Southeast? SOLUTION. INCREMENTAL COST: all variable cost in the production process of a good. From t his case exercise, only direst labor and materials are overhead cost. Therefore, I ncremental Cost = $2.25+$2.30 =$4.55 QUESTION 2. W hat assumptions did you make in calculating the incremental cost in Question 1? W hat additional information would be helpful in making these calculations? SOLUTION. My assumptions in calculating question 1 is that the whole plant overhead amount of $1.15 is f ixed, this cannot be in real sense as a certain percentage of i t is suppose to be fixed, and the Remaining percentage, variable. Additional information that would be helpful in making these calculations, includes:  All administrative and selling expenses. QUESTION 3. Based on your answers to question 1 & 2, should leisure products accept the southeast order? SOLUTION. In answering this question, more information as regards variable overhead cost is necessary. B ut notwithstanding, if i t’s less than $0.95, then we should accept the order. $5.50$4.55 =$0.95 QUESTION 4. What additional considerations might lead leisure products to reject the order? SOLUTION. Additional Considerations:  Consequences in the future market should other fi rms find out that i ts selling at the p rice of $5.50, they might want to buy at the same price which can lead to a loss. ...
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This note was uploaded on 12/18/2010 for the course ECON 7106 taught by Professor Clovey during the Fall '10 term at CUNY Brooklyn.
 Fall '10
 clovey

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