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ACC561 Wiley Week 6 E23-1 E23-2

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E23-1 Pender has prepared the following list of statements about decision making and incremental analysis.

1. The first step in management’s decision-making process is, “Determine and evaluate possible
courses of action.”
2. The final step in management’s decision-making process is to actually make the decision.
3. Accounting’s contribution to management’s decision-making process occurs primarily in
evaluating possible courses of action and in reviewing the results.
4. In making business decisions, management ordinarily considers only financial information
because it is objectively determined.
5. Decisions involve a choice among alternative courses of action.
6. The process used to identify the financial data that change under alternative courses of action
is called incremental analysis.
7. Costs that are the same under all alternative courses of action sometimes affect the decision.
8. When using incremental analysis, some costs will always change under alternative courses of
action, but revenues will not.
9. Variable costs will change under alternative courses of action, but fixed costs will not.

Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.

E23-2 Wyco Company manufactures toasters. For the first 8 months of 2011, the company reported
the following operating results while operating at 75% of plant capacity.

Sales (400,000) units  4,000,000
Cost of goods sold  2,400,000
Gross profit  1,600,000
Operating expenses  900,000
Net income  700,000

Cost of goods sold was 70% variable and 30% fixed. Operating expenses were 60% variable and
40% fixed.
In September,Wyco Company receives a special order for 40,000 toasters at $6.00 each from
Salono Company of Mexico City. Acceptance of the order would result in $8,000 of shipping
costs but no increase in fixed operating expenses.

Instructions
(a) Prepare an incremental analysis for the special order.
(b) Should Wyco Company accept the special order? Why or why not?

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