Marginal and Incremental Analysis for Orders
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ScribdTranslationsMarginal and Incremental Analysis for Orders
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ScribdTranslationsCase
The company 'La Industrial'. S.A. de C.V. produces an item at a price of $5. The structure of
costs is:
Total fixed costs $150,000.
Unit variable cost $2.
The installed capacity is 100,000 units and the planned volume is 75,000 units.
That means it has an idle capacity of 25,000. A special order for 20,000 is requested.
units priced at $3.
a) Apply marginal analysis to know the contribution margin considering the price
for sale and the variable cost.
b) Examine the scenario for incremental analysis, if variable costs were to increase.
$0.10 y se requerirán costos fijos adicionales de $10,000.00. Agrega su interpretación.
c) It is necessary that in each cell where results are determined, they are obtained through
of a basic arithmetic formula, either because they used addition, subtraction, multiplication or
division.
The company 'La Industrial'. S.A. de C.V.
Marginal analysis
Date of preparation: February 25, 2021
a) Apply marginal analysis to determine the contribution margin considering the
selling price and variable cost.
Marginal analysis
With a unitary approach:
Special order price $ 3.00
Variable cost special order $ 2.00
Unit contribution margin $ 1.00
With a focus on the total order:
Special order sales 20,000.00 x $ 3.00 $60,000.00
Variable cost special order 20,000.00 x $ 2.00 $40,000.00
Total contribution margin $20,000.00
CONCLUSION:
Yes, the order is accepted, as a profit of $1.00 per unit can be obtained, which generates a
total utility $20,000.00. In addition to having an idle capacity of 25,000 units, that is to say that
production capacity that is wasted and therefore it is feasible to accept the order since it is available
with that ability to attend to it. And finally, it is observed that fixed costs do not increase at all.
The company "La Industrial" S.A. de C.V.
Incremental analysis
Date of creation: February 25, 2021
b) Examine the scenario for incremental analysis, if variable costs increase.
$0.10 and additional fixed costs of $10,000.00 will be required. Add your interpretation.
SOLUTION
Incremental Analysis
Sales special order 20,000.00 x $ 3.00 $60,000.00
Variable cost special order 20,000.00 x $ 2.10 $42,000.00
Total contribution margin $18,000.00
Increased Fixed Costs $10,000.00
Increased utility $ 8,000.00
CONCLUSION:
Yes, the order is accepted, because despite having an increase in the variable cost of $0.10 per unit
increase in fixed costs of $10,000.00, selling those 20,000 units still generates a profit
$8,000.00 and has the capacity to carry them out.
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