ACG 2071 Extra Incremental Problems – Spring 2016
1. Bee Bakery incurs $118,800 of variable costs and $38,000 of fixed costs per year baking
various types of bread totaling 165,000 loaves. On the average, it has 15 remaining loaves
at the end of any day, totaling 4,380 loaves of unsold bread per year. The bakery currently
sells the unsold loaves to the homeless center for a total of $3,285 annually, or it can convert
these unsold loaves into 2,300 pounds of croutons at an added annual cost of $1,410. The
annual output of croutons can be sold to restaurants for $4,620.
A. How much is incremental revenue?
B. How much is incremental profit/loss?
Incremental revenue ($4,620 - $3,285)
Incremental cost
Incremental decrease in profit if processed further
A $1,335
(1,410)
B $ (75)
2. March Rains produces several models of rain catchers. An outside supplier has offered to
produce the containers used for the rain catchers for $8.95 each. March Rains needs 4,200
containers annually. The company has provided the following unit costs for each rain catcher:
Direct materials
$2.50
Variable overhead
$1.60
Direct labor
4.15
Fixed overhead (68% unavoidable)
3.00
If March Rains outsources, it can quit leasing an adjoining facility that costs $2,150 annually.
 In good form using proper line item labels, prepare a single column incremental
analysis to determine the financial effect of the decision at hand. Show calculations to the
right of the table.
Incremental cost to buy (4,200*$8.95)
Incremental cost savings:
DM ($2.50*4,200)
DL ($4.15*4,200)
VOH ($1.60*4,200)
FOH ($3.00*32%*4,200)
Opportunity cost - facility
Incremental increase in profit if outsourced
$ (37,590)
10,500
17,430
6,720
4,032
2,150
$ 3,242
3. Taco Ted prepares and sells approximately 86,000 tacos each year. Its capacity is 92,000
tacos. The unit cost of making one taco at its current operating level follows:
Direct materials
Variable manufacturing overhead
Direct labor
Fixed allocated manufacturing overhead
$1.05
0.15
0.45
0.32
The Rotary Club has offered to buy 3,600 tacos at $1.75 each over the next year, if Taco Ted
agrees to deliver 300 tacos to each of its monthly meetings for a year. Regular customers
pay $2.40 per taco. Taco Ted has determined the cost of delivering will be $39 per month or
$468 per year. Show the calculation of the total relevant cost of the special order. Circle
your answer.
DM ($1.05*3,600)
DL ($0.45*3,600)
VOH ($0.15*3,600)
Delivery cost
Incremental cost per unit
$3,780
1,620
540
468
$6,408
4. Walkers has three product lines in its retail stores: shoes, boots, and sandals. The
allocated fixed costs are based on units sold and are unavoidable. Results of June follow:
Units sold
Socks
800
Boots
1,200
Sandals
2,400
Total
4,400
Revenue
$23,800
$30,400
$36,600
$90,800
Variable costs
13,600
13,200
16,800
43,600
Direct fixed costs
5,000
7,000
6,500
18,500
Allocated fixed costs
8,000
9,000
8,000
25,000
Net income (loss)
$(2,800)
$1,200
$ 5,300
$3,700
Demand of sandals is expected to increase by 12% as a result of dropping socks. In
good form, prepare a single column incremental analysis of dropping socks. Label each
line item respectively.
Incremental revenue -socks
Incremental VC savings - socks
Incremental DFC savings - socks
Incremental revenue -sandals (12%*36,600)
Incremental VC - sandals (12%*16,800)
Incremental decrease in profit if socks are dropped
$
$
(23,800)
13,600
5,000
4,392
(2,016)
(2,824)