COMM 305 & ACCO 240
Prof. M. Brivot
CHAPTER 7– Incremental Analysis
1-The basic rule in a sell-or-process-further decision is: process further as long as the
incremental revenue from such processing exceeds the incremental processing costs.
2-Book value is a sunk cost and is therefore relevant in incremental analysis of keep or replace
3-Opportunity costs are costs that have already been incurred and will not be avoided by any
4-Joint product costs are relevant for any sell-or-process-further decisions.
If revenues are $315,000 under alternative A and $324,000 under alternative B, and costs are
$285,000 for A and $306,000 for B, then using the basic approach in incremental analysis,
incremental revenues, costs, and net income, in comparing B to A are, respectively:
$9,000, $(21,000), $(12,000).
$(9,000), $21,000, $12,000.
$9,000, $21,000, $12,000.
$(9,000), $(21,000), $(12,000).
2- The cost to manufacture an unfinished unit is $120 ($90 variable, $30 fixed). The selling price
per unit is $150. The company has unused productive capacity and has determined that
units could be finished and sold for $195 with an increase in variable costs of 40%. What is