Denton Inc. has some material that originally cost $33,800. The material can be sold as is for $29,400, but if reworked at a cost of $7,800, it can be sold for $35,600.

What would be the incremental effect on the company’s overall profit of processing the material further rather than selling it as is?

Question

Denton Inc. has some material that originally cost $33,800. The material can be sold as is for $29,400, but if reworked at a cost of $7,800, it can be sold for $35,600.

What would be the incremental effect on the company’s overall profit of processing the material further rather than selling it as is?

BlackTom AI · Accepted Answer

Incremental analysis compares only the additional revenues and additional costs that result from processing further; sunk costs (the original $33,800) are irrelevant.

1. Relevant knowledge points and concepts
- Sunk cost: the $33,800 original cost is already incurred and should not affect the decision.
- Relevant (incremental) revenue: the difference in sales proceeds between processing further and selling as is.
- Relevant (incremental) cost: the additional rework cost required to process further.
- Incremental profit = incremental revenue − incremental cost.

2. Step-by-step reasoning
- If sold as is: cash inflow = $29,400.
- If reworked and sold: cash inflow after rework = sales price $35,600 minus rework cost $7,800 = net cash inflow $27,800.
- Compare the two alternatives to find the incremental effect.

3. Calculations (all intermediate steps)
- Incremental revenue = $35,600 − $29,400 = $6,200.
- Incremental cost = $7,800 (the rework cost).
- Incremental profit = $6,200 − $7,800 = −$1,600.
Alternatively: Net from reworking = $35,600 − $7,800 = $27,800; difference versus selling as is = $27,800 − $29,400 = −$1,600.

4. Why the correct answer is correct
Because reworking produces $6,200 more in sales but requires $7,800 more in cost, the net effect is a $1,600 reduction in profit. The original $33,800 is irrelevant to this incremental decision.

5. Why the other options are incorrect
- Increase profit by $4,400: incorrect; incremental revenue (6,200) does not exceed incremental cost by 4,400.
- Decrease profit by $4,400: incorrect; the net loss is $1,600, not $4,400.
- Increase profit by $1,600: incorrect sign and magnitude; the change is a decrease of $1,600.

6. Conclusion
The incremental effect of processing further is a decrease in profit by $1,600, which matches the provided correct answer.

类似问题

What is a budget deficit?

Refer to Figure 1 below and answer the question that follows: Figure 1: Monetary Policy Transmission Mechanism Which combination best fits into boxes 2, 3 and 4, respectively?

Which of the following factors may lead to demand-pull inflation?

Last year Amali earned $60,000 salary. This year, her income was $62,000. Inflation in the economy in the last year was 7%. Which of the following statement is true?

Which of the following combinations of two factors is most likely to result in higher inflation, ceteris paribus?

Which of the following factors would be most likely to lead to a decrease in aggregate supply?

Which of the following statements about aggregate demand (AD) is incorrect?

Use the same information as in Question 6. The sales manager is convinced that a $5,400 increase in the monthly advertising budget would increase total sales by $18,000. What would be the effect on net operating income?

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单