Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

When completing a differential analysis, when are the differences shown as positive amounts? As negative amounts?

Short Answer

Expert verified

Answer

Ifrevenues increase from alternative one to two, it is positive, and ifrevenue decreasesfrom alternative one to two, it is shown as negative.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Differential Analysis

Differential analysis refers to the technique used by business entities to make decisions that examine thebenefits and costs associated with the two available options and compare thenet results.

02

Negative and positive amounts in differential analysis

When completing adifferential analysis, the differences are positive if the revenues or expenses from the second alternative are greater than the first alternative.

In addition, the differences are shown as negative if revenues or expenses from the second alternative are less than the first alternative.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Heavenly Dessert processes cocoa beans into cocoa powder at a processing cost of \(9,700 per batch. Heavenly Dessert can sell the cocoa powder as is, or it can process the cocoa powder further into either chocolate syrup or boxed assorted chocolates. Once processed, each batch of cocoa beans would result in the following sales revenue:

Cocoa powder \)14,500

Chocolate syrup 103,000

Boxed assorted chocolates 204,000

The cost of transforming the cocoa powder into chocolate syrup would be \(72,000. Likewise, the company would incur a cost of \)183,000 to transform the cocoa powder into boxed assorted chocolates. The company president has decided to make assorted boxed chocolates due to their high sales value and to the fact that the cocoa bean processing cost of $9,700 eats up most of the cocoa powder profits. Has the president made the right or wrong decision? Explain your answer. Be sure to include the correct financial analysis in your response.

What questions should managers answer when setting regular prices?

What makes information relevant to decision making?

Elm Petroleum has spent \(204,000 to refine 61,000 gallons of petroleum distillate, which can be sold for \)6.30 per gallon. Alternatively, Elm can process the distillate further and produce 58,000 gallons of cleaner fluid. The additional processing will cost \(1.80 per gallon of distillate. The cleaner fluid can be sold for \)9.10 per gallon. To sell the cleaner fluid, Elm must pay a sales commission of \(0.10 per gallon and a transportation charge of \)0.16 per gallon.

Requirements

1. Diagram Elmโ€™s decision alternatives, using Exhibit 25-18 as a guide.

2. Identify the sunk cost. Is the sunk cost relevant to Elmโ€™s decision?

3. Should Elm sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives.

This problem continues the Piedmont Computer Company situation from Chapter 24. Piedmont Computer Companyโ€™s payroll accountant has submitted her resignation and will be leaving the company in two weeks. The company must decide if it will hire a replacement or outsource the payroll position. The current employee earns a salary of \(40,000. Medical insurance, employer payroll taxes, and contributions to the pension plan for this position cost \)7,600. The company has already invested \(22,000 in payroll software. Required annual updates to remain in compliance with all state and federal laws are \)495. The company also spends \(1,750 per year in professional development for this position to ensure the employee stays up-to-date with payroll changes. Piedmont Computer Company pays its employees weekly. Payroll Professionals will processthe companyโ€™s weekly payroll for \)1,000 per week. This fee also includes preparing all necessary payroll tax returns, reports, and W-2s.

Requirements

1. Prepare a differential analysis to determine if Piedmont Computer Company should replace the employee or outsource the payroll function.

2. What other factors should Piedmont Computer Company consider in making this decision?

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free