Question

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 Select one: a. $9,000, $(21,000), $(12,000). b. $9,000, $21,000, $12,000. c. $(9,000), $21,000, $12,000. d.$(9,000), $(21,000), $(12,000).

Answer 1

1.

	Alternate A	Alternate B	Incremental amount
Revenues	315,000	324,000	9,000
Costs	- 285,000	- 306,000	- 21,000
Net income	$30,000	$18,000	- $12,000

Hence, correct option is (a)

2.

Variable cost per unit = $90

Increase in variable cost = 40%

= 90 x 40%

= $36

Selling price of unfinished unit = $150

Selling price of finished unit = $195

Increase in selling price = 195 - 150

= $45

Additional net income = Increase in selling price - Increase in variable cost

= 45 - 36

= $9

Hence, correct option is (c)

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