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For which of the following is incremental analysis appropriate? Acceptance of a special order and a...

For which of the following is incremental analysis appropriate?

Acceptance of a special order and a make or buy decision.

A retain or replace equipment decision and CVP analysis.

A sell or process further decision and allocation of indirect costs.

Elimination of an unprofitable segment and allocation of indirect costs.
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Answer #1

Answer is Acceptance of a special order and a make or buy decision

Incremental analysis for a special order includes analysing Incremental sales revenue from special order minus incremental costs – Variable cost and cost of serving special order. Incremental analysis for make or buy includes comparing relevant cost of make vs. relevant cost of buying and incremental analysis to check whether make or buy is giving financial advantage to the organisation. Allocation of indirect costs does not require any incremental analysis. Also CVP analysis does not need any incremental analysis. Hence answer is first option.

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