Question

6. Incremental Analysis: If production does increase dramatically after their presentation on Shark Tank, the Lees...

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*

Homework Answers

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
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