Question

6. Incremental Analysis: If production does increase dramatically after their presentation on Shark Tank, the Lees will need more space for production. They have two options. Option 1 is to rent out a spacious warehouse nearby. If they pursue this option, there rent will be $2400 per month and utilities are estimated to cost an additional $350 per month. Their second option, Option 2, is to rent a smaller storefront space that is also nearby. The storefront rent is $1950 per month. However, utilities will likely only cost an additional $250 per month. They want to compare their options over one year’s time (since each rental contract is a 1 year commitment). What is the incremental analysis if the Lees choose Option 1 over Option 2? *Please show step by step in Excel*

Answer 1

Incremental analysis is the analysis of net impact made due a change in a decision.

Here, Impact of change in warehouse is being analysed in monetary terms.

Please find below the excel working as requested.

Also attaching a snapshot of excel for your reference.

Monthly	Option 1	Option 2		Yearly	Option 1	Option 2		Difference
Rentals	2400	1950		Rentals	28800	23400		Rentals	5400
Utilities	350	250		Utilities	4200	3000		Utilities	1200
Total	2750	2200		Total	33000	26400		Total	6600	This is the incremental expense that the Lees will have to bear if they chose option 1