CHAPTER 21
INCREMENTAL ANALYSIS
OVERVIEW OF BRIEF EXERCISES, EXERCISES, PROBLEMS, AND CRITICAL
THINKING CASES
Brief
Exercises
B. Ex. 21.1
B. Ex. 21.2
B. Ex. 21.3
B. Ex. 21.4
B. Ex. 21.5
B. Ex. 21.6
B. Ex. 21.7
B. Ex. 21.8
B. Ex. 21.9
B. Ex. 21.10

Exercises
21.1
21.2
21.3
21.4
21.5
21.6
21.7
21.8
21.9
21.10

21.11
21.12
21.13
21.14
21.15

Topic
Using average unit costs
Make or buy
Joint cost allocation
Outsource a product
Opportunity costs
Identifying costs
Allocating productive capacity
Match decision and relevant costs/revenues
Sell at split-off or process further
Scrap or rebuild

Topic
Accounting terminology
Real World: Home Depot
Incremental, sunk, and opportunity costs
Incremental analysis: Accepting a special order Scarce resources
15 Medium

21.3

The Dow Corporation
Internet
This assignment focuses on the types of incremental decisions that might be made at this firm. In addition, the student is asked to think of qualitative factors that might be considered in the decision-making process. 20 Easy

21.4

SEC Enforcement Fines
Ethics, Fraud & Corporate Governance
Students consider how the SEC fines policy creates relevant costs that managers may (or may not) consider when thinking about undertaking fraudulent reporting.

20 Medium

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SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1. Short-run decisions are made with a fixed set of resources and must meet the demands of the current marketplace. There is no time to create demand or acquire a significantly different set of resources. For long-run decisions, plans are created to acquire the resources necessary to create the additional demand and then meet that demand.
2. Incremental costs, defined as the difference in costs between alternative courses of action and incremental revenues, defined as the difference in revenues between alternative courses of action, are compared to each other to determine the incremental profits between alternative actions. If the incremental revenue less the incremental cost of action one is higher than the incremental revenue