Incremental Analysis
Download the Unit VI Assignment Excel worksheet and complete the following problems on the worksheets. Each problem is designated by a worksheet in the tabs at the bottom of the file.
Worksheet Problem 1
Gulf Coast Paddle produces paddleboards for retailers in the United States. The cost of producing 2,500 paddleboards includes the following:
Materials: $400,000
Labor: $150,000
Variable Overhead: $100,000
Fixed Overhead: $300,000
TOTAL: $950,000
Selling expense per board: $15
Dream Sailing has offered to purchase 1,000 paddleboards from Gulf Coast Paddle for $380 per board. This order will not conflict with Gulf Coast Paddle’s current orders with a selling price of $400 per board.
- Prepare an incremental analysis for the special order.
- Should Gulf Coast Paddle accept or reject the order?
Worksheet Problem 2
Wilson furniture uses a piece of equipment in the production of their furniture. Business has been increasing, and they are considering replacing the equipment with a newer machine. The company currently operates as follows: Revenue of $100,000, maintenance expense of $12,000, and operating expenses of $42,000. The new machine would operate as follows: Revenue of $100,000, maintenance expense of $5,000, and operating expenses of $37,000. The current equipment was upgraded 2 years prior at a cost of $15,000.
- Prepare an incremental analysis comparing the current and new equipment that is being considered.
- Should the company keep its current or purchase the new piece of equipment?
- Were all costs relevant to your decision? If not, why?
Complete the worksheets, then submit the spreadsheet.
