Concept explainers
(a)
Incremental analysis:
Incremental analysis involves the accumulation of information that pertains to a single course of action or product line. Incremental analysis identifies the possible effects that can occur due to the decisions taken on the future earnings.
For instance, if somebody decides to purchase or lease a laptop for use in doing accounting homework, the cost of leasing and the cost of purchasing are considered. Leasing involves periodic lease payments while purchasing requires the down payment of the purchase price.
To determine: The points to be considered by the company before deciding to offer the special-order fans to customers.
(b)
Incremental Analysis: The method to measure the viability of different options related to business operations is called incremental analysis. It evaluates the costs of different alternatives available.
To determine: How incremental analysis can be employed to assist in the decision.
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
Managerial Accounting: Tools for Business Decision Making
- Nunez Corporation runs two convenience stores, one in Connecticut and one in Rhode Island. Operating income for each store in 2014 is as follows: (Click to view the operating income for the stores.) The equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the management accountant at Nunez Corporation, makes the following comment, "Nunez can increase its profitability by closing down the Rhode Island store." Is Maria Lopez Correct? Read the requirements. Requirement 1. By closing down the Rhode Island store, Nunez can reduce overall corporate overhead costs by $45,000. Calculate Nunez's operating income if it closes the Rhode Island store. Is Maria Lopez's statement about the effect of closing the Rhode Island store correct? Explain. Begin by calculating Nunez's operating income if it closes the Rhode Island store. (Enter losses in revenues as a negative amount. Enter a "0" if the cost is Data Table (Loss in Revenues) Savings in Costs Revenues Connecticut…arrow_forwardRivera Corporation runs two convenience stores, one in Connecticut and one in Rhode Island. Operating income for each store in 2014 is as follows: (Click to view the operating income for the stores.) The equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the management accountant at Rivera Corporation, makes the following comment, "Rivera can increase its profitability by closing down the Rhode Island store." Is Maria Lopez Correct? Read the requirements. Requirement 1. By closing down the Rhode Island store, Rivera can reduce overall corporate overhead costs by $40,000. Calculate Rivera's operating income if it closes the Rhode Island store. Is Maria Lopez's statement about the effect of closing the Rhode Island store correct? Explain. 4 Begin by calculating Rivera's operating income if it closes the Rhode Island store. (Enter losses in revenues as a negative amount. Enter a "0" if the cost is not relevant. If the net effect is an operating loss enter…arrow_forwardDiamond Computers, which is owned and operated by Dale Diamond, manufactures and sells different types of computers. The company has reported profits every year since its inception in 2002 and has applied for a bank loan near the end of 2021 to upgrade manufacturing facilities. These upgrades should significantly boost future productivity and profitability. In preparing the financial statements for the year, the chief accountant, Sandy Walters, mentions to Dale that approximately $80,000 of computer inventory has become obsolete and a write-down of inventory should be recorded in 2021. Dale understands that the write-down would result in a net loss being reported for company operations in 2021. This could jeopardize the company’s application for the bank loan, which would lead to employee layoffs. Dale is a very kind, older gentleman who cares little for his personal wealth but who is deeply devoted to his employees’ well-being. He truly believes the loan is necessary for the company’s…arrow_forward
- Horizon Corporation manufactues personal computers. The company began operations in 2012 and reported profits for the years 2012 through 2019. Due primarily to increased competition and price slashing in the industry, 2020's income statement reported a loss of $20 million. Just before the end of 2021 fiscal year, a memo from the company's chief financial officer (CFO) to Jim Fielding, the company controller, included the following comments: "If we dont do something about the large amount of unsold computers already manufactured, our auditors will require us to record a write-down. The resulting loss for 2021 will cause a violation of our debt convenants and force the company into bankruptcy. I suggest that you ship half of out inventory to J.B. Sales, Inc., in Oklahoma City. I know the company's presdient, and he will accept the inventory and acknowledge the shipment as a purchase. We can record the sale in 2021 which will boost our loss to a profit. Then J.B. Sales will simply return…arrow_forwardRoundtree Manufacturing Co. is preparing its year-end financial statements and is considering the accounting for the following items. 1. The vice president of sales had indicated that one product line has lost its customer appeal and will be phased out over the next 3 years. Therefore, a decision has been made to lower the estimated lives on related production equipment from the remaining 5 years to 3 years. 2. The Hightone Building was converted from a sales office to offices for the Accounting Department at the beginning of this year. Therefore, the expense related to this building will now appear as an administrative expense rather than a selling expense on the current year's income statement. 3. Estimating the lives of new products in the Leisure Products Division has become very difficult because of the highly competitive conditions in this market. Therefore, the practice of deferring and amortizing preproduction costs has been abandoned in favor of expensing such costs as they…arrow_forwardRichmond, Inc. operates 44 shopping malls. Two years ago, the Richmond Board of Directors decided to renovate the store to attract more top-class customers. Before implementing these plans, Linda Pearlman, assistant financial manager, was asked to oversee financial reporting for the pilot shop, and it was known that she and other executives receive bonuses for the company's sales growth and profitability. As she filled in the financial report, she discovers that there are inventory items that have been out of fashion and that these items should be discounted for sale or returned to the manufacturer. She consulted this situation with her management colleagues, who agreed that it was a good idea not to list these products as obsolete items. If they do, they will have a negative impact on their financial performance and certainly affect their bonuses. Do you think that what Pearlman would do without reporting the product as a falling product? Are there ethical issues in accounting? What…arrow_forward
- Family Resorts, Inc., is a holding company for several vacation hotels in the northeastern and mid-Atlantic states. The firm originally purchased several old inns, restored the buildings, and upgraded the recreational facilities. Vacationing families have been well pleased with the inns because many services are provided that accommodate children and afford parents time for themselves. Since the completion of the restoration 10 years ago, the company has been profitable.Family Resorts has just concluded its annual meeting of regional and district managers. This meeting is held each November to review the results of the previous season and to help the managers prepare for the upcoming year. Before the meeting, the managers submitted proposed budgets for their districts or regions as appropriate. These budgets are reviewed and consolidated into an annual operating budget for the entire company. The 2008 budget has been presented at the meeting, and the managers accepted it. To evaluate…arrow_forwardFamily Resorts, Inc., is a holding company for several vacation hotels in the northeastern and Mid-Atlantic states. The firm originally purchased several old Inns, restored the buildings, and upgraded the recreational facilities. Vacationing families have been well pleased with the Inns because many services are provided that accommodate children and afford parents time for themselves. Since the completion of the restoration 10 years ago, the company has been profitable.  Family Resorts has just concluded its annual meeting of regional and district managers. This meeting is held each November to review the results of the previous season and to help the managers prepare for the upcoming year. Before the meeting, the managers submitted proposed budgets for their districts or regions as appropriate. These budgets are reviewed and consolidated into an annual operating budget for the entire company. The 2008 budget has been presented at the meeting and the managers accepted it.  To…arrow_forwardHorizon Corporation manufactures personal computers. The company began operations in 2012 and reported profits for the years 2012 through 2019. Due primarily to increased competition and price slashing in the industry, 2020’s income statement reported a loss of $20 million. Just before the end of the 2021 fiscal year, a memo from the company’s chief financial officer (CFO) to Jim Fielding, the company controller, included the following comments:If we don’t do something about the large amount of unsold computers already manufactured, our auditors will require us to record a write-down. The resulting loss for 2021 will cause a violation of our debt covenants and force the company into bankruptcy. I suggest that you ship half of our inventory to J.B. Sales, Inc., in Oklahoma City. I know the company’s president, and he will accept the inventory and acknowledge the shipment as a purchase. We can record the sale in 2021 which will boost our loss to a profit. Then J.B. Sales will simply…arrow_forward
- Alif trading company is a popular distributor in Salala, having operations in the entire Oman. Over these years, the company has gained a very good public opinion and quiet a big number of loyal customers. During the last year, the company has faced some financial struggles due to the pandemic - crisis. The company has decided to plan well for the current year based on the past performance so that the company will be able to regain its status. The management of the company has given with you the Income statement for the last year and asked you to calculate the gross profit and net profit margin. Partkula OMR OM Particular Sales AI520 Clesitoc 2000 5000 100000 To Ovening Stock Torchases Karnage d Wags JGrom Proft bd 600.000 To LOL00 Gross Profie bd 120o0 " 2000 teret on Securities 70o0Dvdend on shares I4 Do Prot ensae of sares 3,0.0 Tramstrationegeres 300000 Nonoperating incomes Selling and Dist egese Nonoperatingegeses FFirancial Espenes Net Proft c/ 1500 1750 750 Choose the Gross…arrow_forwardBetty’s Fashions operates retail stores in both downtown and suburban locations. The company has two responsibility centers: the City Division, which contains stores in downtown locations, and the Mall Division, which contains stores in suburban locations. Betty’s CEO is concerned about the profitability of the City Division, which has been operating at a loss for the last several years. The most recent City Division income statement follows. The CEO has asked for your advice on shutting down the City Division’s operations. If the City Division is eliminated, corporate administration is not expected to change, nor are any other changes expected in the operations or costs of the Mall Division.arrow_forwardAmeen trading company is a popular distributor in the Nizwa region having years of experience in the field of logistics and marketing. Over these years, the company has gained a very good public opinion and quiet a big number of loyal customers. During the last year, the company has faced some financial struggles due to the pandemic – crisis. The company has decided to plan well for the current year based on the past performance so that the company will be able to regain its status. The management of the company has given with you the Income statement for the last year and asked you to calculate the gross profit and net profit margin. Particular OMR Particular OMR Opening Stock Purchases Carriage and Freight Wages Gross Profit b/d To 76,250 By Sales 3,15,250 "Closing stock 2,000 5,000 2,00,000 5,98,500 1,01,000 By Gross Profit b/d 12,000 "Non-operating incomes: 2,000 " Interest on Securities 7,000 " Dividend on shares 84,000 " Profit on sale of shares 2,06,000 5,00,000 98,500 5,98,500…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education