Financial and Managerial Accounting

Chapter 21 Incremental Analysis

Learning Objectives

After studying this chapter, you should be able to:

1. Identify the steps in management's decision-making process.
2. Describe the concept of incremental analysis.
3. Identify the relevant costs in accepting an order at a special price.
4. Identify the relevant costs in a make-or-buy decision.
5. Identify the relevant costs in determining whether to sell or process materials further.
6. Identify the relevant costs to be considered in repairing, retaining, or replacing equipment.
7. Identify the relevant costs in deciding whether to eliminate an unprofitable segment or product.

Feature Story

Make It or Buy It?

When is a manufacturer not a manufacturer? When it outsources. An extension of the classic “make or buy” decision, outsourcing involves hiring other companies to make all or part of a product or to perform services. Who is outsourcing? Nike, General Motors, Sara Lee, and Hewlett-Packard, to name a few. Even a recent trade journal article for small cabinet-makers outlined the pros and cons of building cabinet doors and drawers internally, or outsourcing them to other shops.

Gibson Greetings, Inc., one of the country's largest sellers of greeting ...